As investors and financial advisors continue to educate themselves on the benefits that exchange traded funds (ETFs) can offer, the growing appeal of ETFs seems to be making its way into retirement plans.
Most recently, Ian Salisbury of the Wall Street Journal reported that BlackRock Inc., the largest ETF provider, estimates that investors hold nearly $2 billion worth of its ETFs in 401(k) plans. This marks tremendous growth when compared to the $500 million that was held in these plans last year.
Some of the benefits that ETFs can offer include transparency, lower costs, tax efficiency and flexibility. Flexibility, in particular, is one of the key drivers behind ETF growth. ETFs enable investors to reach hard-to-access markets such as commodities, currencies and international markets with the same ease as a run-of-the mill domestic company stock (More on ETF Benefits).
For example, an investor can easily access crude oil through the US Oil Fund (USO) or play the agriculture markets by gaining diversified exposure through the PowerShares DB Agriculture Fund (DBA), which is a one-stop shop for access to cattle, soybeans, lean hogs, coffee, corn, and sugar.
Additionally, as developing nations start to decouple from the United States and Europe, they have become more appealing to investors. With this in mind, ETFs give investors the choice to play international markets using a country-specific strategy, like the iShares MSCI Brazil Index (EWZ), which gives exposure to emerging Brazil, or a diversified strategy, like the iShares MSCI Emerging Markets Index (EEM), which gives exposure to Brazil, South Korea, Taiwan, China and India (Other Ways To Go International).
The continued growth and appeal of these investment tools has driven many large financial institutions to enter the landscape to get a piece of the pie. Companies like Charles Schwab and T.Rowe Price, who are big players in the retirement plan space, have entered the ETF marketplace which will likely further boost the use and appeal of these advantageous products in 401(k)s.
