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Exchange-Traded Fund Inflows Rise Sharply

Exchange-traded funds attracted $17 billion in the first six months of the year, accumulating $12 million in the second quarter alone, according to Strategic Insight of New York. Assets in exchange-traded funds reached $52.6 billion at the end of June, up from $35.8 billion at the end of 1999, the firm said.

The NASDAQ-100, or QQQ exchange-traded funds attracted $7 billion in the first half of the year, while the iShares of Barclay's Global Investors of San Francisco attracted $2 billion, even though the funds were not available to investors until late in the second quarter, according to Strategic Insight.

Further, iShares have been used by investors as primarily an asset allocation device, a study by Strategic Insight found.

Exchange-traded funds should continue to increase in popularity and attract assets, the study said. The growth will come from new investments and assets from stock investments, according to the study.

Exchange-traded funds will not siphon assets from traditional index funds because capital gains taxes will discourage investors from shifting their assets, the study found.

"We see only a limited threat to mutual funds from currently-available exchange-traded funds," said Avi Nachmany, director of research at Strategic Insight. "At the same time, actively-managed exchange-traded funds, once they are offered, could be an important opportunity for the mutual fund industry to expand into a new customer base."