Transition managers are using the growing number of U.S. exchange-traded funds as investment vehicles during the shift from one investment manager to another because of their diversity and nimbleness.
"Not only has the ETF market become much more diverse, the liquidity allows for a great deal of (detail) in our trading," said Mark Keleher, president of Mellon Transition Management Services, San Francisco. "Sometimes ETFs are actually more liquid than futures or might be more tailored in that they're tracking a particular sector or style."
Brad Pope, business development officer at Barclays Global Investors, San Francisco, said some of the biggest users of the firm's ETFs, known as iShares, are transition managers. He said ETFs give "targeted exposure … in a very efficient and cost-effective manner."
According to data from Morgan Stanley's ETF strategies unit in London, the number of ETFs worldwide has reached nearly 400, with $248 billion under management as of Sept. 30, up from 338 and $176 billion a year earlier.
In the United States, there are almost 150 ETFs now, compared with 115 in 2003.
ETFs have expanded from tracking broad-market indexes such as the Standard & Poor's 500 to include large-cap, midcap and small-cap equities, each in growth or value, as well as international equities.