Although exchange-traded funds recorded record inflows in 2012 and have grown significantly in the last 20 years, there is still huge potential in the market, according to Barclays Stockbrokers.

“When the first ETF launched 20 years ago in the US, few could have imagined how big the concept would become," said Chris Stevenson, vice president and product manager at Barclays Stockbrokers.

"Many feel ETF growth has only just begun. In the US, where ETFs are most widely used, the ETF market still accounts for only around 10 per cent of total assets held in mutual funds. In Europe and Asia, it is at an even earlier stage of development," he added.

The SPDR S&P 500 ETF has become the most heavily-traded equity security in the world and now has assets of $127 billion. Meanwhile, thousands of other ETFs have been created, absorbing a record $260 billion in 2012.

Barclays Stockbrokers attributes this popularity with investors to their simplicity, transparency and cost efficiency.

"ETFs are typically simple investment structures that do exactly what they are designed to do, and provide investors with absolute transparency of what the components of the investment are. Most are passive, designed simply to track the return on a given index rather than beat the market, and therefore come with lower fees than actively managed funds," said Barclays Stockbrokers.

The firm also said the wide range of ETFs available made them a flexible way to implement an investment strategy, providing investors with the ability to change their portfolios easily.