ETFs Could Surpass Index Funds By 2012

These unconventional funds are gaining ground quickly.

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A new study projects that by 2012, exchange-traded funds will overtake index mutual funds, reports IndexUniverse. By that year, Financial Research Corp. sees ETFs representing 6.8 percent of the pie of investment choices for retail investors. This would be the first time ETFs surpass index funds in terms of market share, says IndexUniverse.

However, Max Chen of ETFTrends points out a big caveat: The data doesn't separate retail and institutional investors, whereas mutual funds are typically retail investments.

Compared with the country's $6 trillion mutual fund industry, ETFs are still a fly speck. But get this: U.S. stock funds, which have surrendered nearly $170 billion in investor assets so far this year, are flirting with the biggest annual sell-off in their history (via TrimTabs Investment Research). But ETFs, which doubled their assets from $305 billion to $619 billion between 2005 and 2007, have actually seen investor money flowing in this year, to the tune of $100 billion.