U.S.-listed ETFs surpassed the $3 trillion asset mark for the first time in July, growing 2.8 percent for the month.
It’s still something of the fly on the elephant, with mutual fund assets growing 1.5 percent to nearly $13.9 trillion in assets, and net flows into mutual funds ($18.7 billion) were positive in July. However, as Boston-based Cerulli Associates notes, these numbers “continue to appear pedestrian when compared to net flows moving into ETFs ($29.6 billion).”
While the low-cost, transparent, tax-efficient and flexible advantages ETFs offer make them increasingly popular with investors across generations, those benefits don’t necessarily translate to long-term, buy and hold retirement planning (save the first).
“The reason for this lack of traction is that the vast majority of the $6 trillion in defined contribution assets in the U.S. are administered by 30-plus-year-old recordkeeping systems that are incapable of accounting for investments that may be traded more than once per day and only after market close,” according to Kuhlin. “This is hard to believe, especially in the year 2016, but it’s true.”
“With respect to the lack of ETFs in retirement plans, technology is holding us back,” he adds. “The old technology being used by the majority of recordkeeping systems effectively locks them into offering only NAV-based investments, typically mutual funds or Common Trust Funds.”
Legacy recordkeeping systems require that within a given investment CUSIP, all buys and sells for the day must be executed after hours, at the exact same price, across all participants transacting in that CUSIP.
“There are exceptions to the rule on some systems when it comes to trading and pricing company stock. In these cases, however, the solution is so ‘shoe-horned’ into the record keeper’s manual processes, there’s no way the process would scale effectively if all the investments on the system were managed the same way,” Kuhlin concludes.