QOTD: ETFs vs Hedge Funds

When it comes to ETFs -- the fastest growing investment vehicle -- investors are showing an increased preference for dirt-cheap products. More than half of the $286 billion that flowed into ETFs last year went into products that charged a fee of 0.09 percent or less. This -- amid a war over fees -- is why revenue growth hasn't kept pace with asset growth. During the past five years, ETF assets have grown by 150 percent to $2.5 trillion, but the revenue they generate has grown by only 80 percent to $6.1 billion.

Although it might seem like a lot, $6 billion in revenue isn't something to write home about. To put that into perspective, if the $2.5 trillion in ETF assets were in actively managed mutual funds, they would generate $18 billion a year in revenue, three times as much. And if it were in hedge funds, it would generate about $45 billion a year (and that’s not including performance fees).

- Eric Balchunas

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