Business and Finance

At 16, and with $640 billion in assets, the U.S. exchange-traded fund industry isn’t exactly wet behind the ears.

ETFs still lag far behind U.S. mutual funds’ more than $10 trillion in assets. But ETFs are gaining on their more established rivals, due in part to a selling point that’s been a big draw in volatile markets. ETFs can be traded like stocks throughout daily trading sessions, unlike mutual fund shares that change hands at end-of-the-day prices.

Clearly, investors are getting the ETF bug. Nearly $184 billion flowed into U.S. ETFs during the 12 months ended July 31, while stock and bond mutual funds saw $81 billion go out, according to the Investment Company Institute.

With more than 700 ETFs in the U.S., the offerings have become so diverse that you can gain exposure to everything from oil industry equipment suppliers to the movements of foreign currencies like Sweden’s krona. Most ETFs track a market index and focus on stocks, but actively managed ETFs and bond ETFs have also entered the fray.

Michael Latham is at the center of it all as U.S. head of Barclays’ iShares business, which commands about half the U.S. ETF market.

IShares’ leadership in a growing industry is a key reason why New York-based asset manager BlackRock Inc. is acquiring Barclays Global Investors, the investment arm of London-based Barclays. BlackRock announced plans three months ago to snap up BGI in a $13.5 billion deal expected to close by year end.

In a recent interview, Latham, 43, discussed growth prospects and challenges for San Francisco-based iShares and the ETF industry. Here are excerpts:

Do you expect any big changes after BlackRock becomes iShares’ new owner?

We really don’t expect any major change at all cheap credit report. We are going to continue to focus on educating financial advisers and investors about how ETFs work.

Many newer ETFs are narrow, tracking the performance of a single industry, overseas market or commodity. Do you see the niche trend continuing?

Some folks are getting into the market and realizing it’s not as simple as maybe they thought, and then are exiting.

We’re not looking for an investment fad. We’re looking to provide the building blocks of different asset classes for long-term investing.

In June we launched an ETF that focuses on Peru, the iShares MSCI All Peru Capped Index. It already has $70 million in assets. But we don’t evaluate product development based on assets gathered in the first year.

Any other new growth areas you see?

We’ll also be doing more bond ETFs because we think the fixed-income market is underserved. And we’ll be looking at more strategy-based products — it might be asset-allocation products, or more complex products.

What about actively managed ETFs?

We’re looking at it. But I think there is a lot of complexity around what you define as an active product. If you start with a true active stock selection, I find it hard to see how that works in a fully transparent ETF.

Source