IF.com: Do you think ETFs are going to remain a niche market or do you think that the mutual fund industry is going to completely evolve?

LK: I don't know, time will tell what's going to happen there. Have you seen the FRC study yet? There's a great study out from the Financial Research Corporation, they say from their broker surveys that actively-managed ETFs will have 16.5 percent of equity fund assets by the year 2007. It's a very compelling product and there are a number of advantages. You can buy it in any brokerage account you want, and you can use it the same way as equity. Mutual funds are a little bit inflexible in some ways, they cannot by bought and sold during the day. They're relatively difficult to borrow against if you have a margin account and you just want to raise cash against them. They're just a different beast.

IF.com: Where do you see the iShares being five years down the road in terms of net assets?

LK: That's very hard to say because it's going to depend a lot on what the overall market does, and how aggressively people adopt ETFs as an alternative. We think that this is going to be a market that continues to grow. We ended 1998 at about $15 billion in assets, and we're up to about $40 billion to $50 billion right now. And so it's a market that's growing fairly quickly as more and more people find out about the benefits.

IF.com: It looks to me like a lot of other players are trying to step in now.

LK: There's certainly a lot of attention and it validates what we've been saying for a number of years that these are great products. And so time will tell what the competitive landscape looks like, what investor demand looks like. We think it's a great product for us to be aligned with as the world's largest indexer, the world's second largest money manager, the largest institutional manager. It's a great product that features what we bring to the table: scale, technology, and low cost, for individual investors as well as institutions.

09/25/2000

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