In 1999, there were 36 ETFs with a total value of $32 billion. In 2016, there are 1,944 ETFs with $2.5 trillion under management. Plenty of people have been saying there are too many "me-too" ETFs and that ETF issuance will top out and start to decline.
Maybe, but the ETF business is unlikely to contract this year. Sure, about 120 ETFs closed last year, according to Factset. To a certain extent, this is normal. Many funds never gained traction because they were late to the game or had no clear constituency. Some were shuttered because investors weren't that interested in the space.
Here's why you'll still see more ETFs: Companies in the investment business — whether they be asset managers, insurance companies, whatever — have to be in the growing ETF game, and many still are not. Those that are not are getting inquires: "They are hearing from their board of directors, 'Why are we not in ETFs?'" said Doug Yones, head of ETFs for the New York Stock Exchange.
Yones points out another key trend: Those in the investment business may themselves be customers of ETFs. Take insurance companies. They need to invest long-term to meet future liabilities, and have an army of investment consultants to show them how to do that. They care a lot about costs and efficiency.
"What if they used fewer of those people," Yones asked, "and instead, bring in ETFs to cover some of their obligations?"