$4 Trillion ETF Market Boom as More Investors Join the Bandwagon

August 4, 2020 11:02 PM

With $4.3 trillion in assets under management, ETFs now manage to get investor interest from around the world.

$4 Trillion ETF Market Boom as More Investors Join the BandwagonETFs are now one of the favourite investment options before individual and institutional investors.

Exchange Traded Funds (ETF) are among the most innovative investment options in the world largest financial market. The biggest ETFs are very liquid and are tracked by fund managers from around the world. The market has grown since they were first launched as an investment option over two decades ago.

ETFs are now one of the favourite investment options before individual and institutional investors. Given their popularity, new funds are launched as soon as any particular theme catches on. There is an ETF tracking work from home stocks, for example, that can help track companies that enable people working from non-office remote locations. You guessed it, it is called WFH.

For some investors, though, the arbitrage and liquidity that the ETFs give are a source of volatility in the markets. The choice of the investor, clearly leaning towards ETF, is the only answer to that criticism.

Take the example of Invesco QQQ, the world’s second most traded ETF, which is invested heavily into the tech sector. As leading companies power the rally for Nasdaq and U.S. markets, it is showing no signs of slowing down. The ETF has outperformed the widely tracked Nasdaq 100 by over 200 percent. It was launched in 1999.

With $4.3 trillion in assets under management, ETFs now manage to get investor interest from around the world, higher than ever mutual funds. The liquidity they offer to investors, opportunities for arbitrage and diversification comes at a very low cost.

$4 Trillion ETF Market Boom as More Investors Join the BandwagonMost Popular ETFs

ETF opportunity for investors

The idea of ETFs took off in the 1990s as a way to give passive investors an option to buy into themes and long-term businesses. The first real was launched in 1989 as the Index Participation Shares for the S&P 500. Soon, the S&P 500 Trust ETF (SPDR) was launched and is one of the most popular and actively traded funds.

ETFs grew in strength with each passing year. In 2003, the net inflows to ETFs overtook that of mutual funds and the direction was clear for the traders and investors. By 2009, nearly 1000 ETFs had been launched.

$4 Trillion ETF Market Boom as More Investors Join the BandwagonSize of ETF Industry

How do ETFs work

ETFs are no different from a mutual fund that represents a basket of stocks. But it trades like any other stock. Like the mutual fund has a net asset value, the ETF has its traded price which can vary every day.

For the investor, the expense ratio for ETFs works out to be lower than mutual funds. Further, investing in an ETF gives investors the diversification of a mutual fund with the flexibility of owning shares in a company, making it more attractive as an option.

Now the biggest institutions are buying into ETFs as well. In May 2020, the Federal Reserve launched its programme to buy into corporate bonds and ETFs that track them. Its purchases will focus on bonds of those companies that were earlier considered investment grade but were downgraded as junk after the market sell-off. There’s now a new ETF called GERM that tracks companies that are focused on treatment and testing of infectious diseases. With global coronavirus cases inching towards the nine million mark, it has caught the imagination of investors.

If investors have not looked at ETFs to put in their money, maybe they are missing emerging opportunities.

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