ETF sales are skyrocketing. Learn why investors are flocking to ETFs, their benefits, and key trends. Discover how to diversify your portfolio with ETFs.
The asset management industry has noted a disruptive trend as ETF sales have skyrocketed over the last 20 years. ETFs or exchange-traded funds have demonstrated phenomenal growth up to 33% higher than conventional mutual funds. Investors looking to diversify their portfolio and lower the risk factors should explore ETFs. These investment products are much like mutual funds and share some features.
Let’s Check Out Some Statistics
If you’re considering investing in ETFs, 2024 is the opportune time. Further, if you’ve always been under the impression that ETFs are a passive form of investment, think again. In recent times, ETFs have taken over the active investment sphere also. Check historical statistics, you’ll see that the total ETF assets under management (AUM) have been growing at a compound annual growth rate (CAGR) of an astonishing 15%.
From 2010 through 2022, the AUMs across the US and Europe have touched the $6.7T mark. By the end of 2023, ETFs reached a record $11.5T. Experts anticipate that these growth trends will persist through 2024 and beyond. By 2027, 24% of the total fund assets will comprise ETFs which is an uptrend of 17% from 2024. Among the top ETFs performing in 2024 are Tesla 2x ETF, VanEck Semiconductor ETF, Schwab Crypto Thematic ETF, and iShares ESG Aware MSCI USA Growth ETF.
Advantages of Investing in ETFs
While the potential for rapid growth and assured returns is a deciding factor, there are several other benefits you can avail of by opting for ETFs.
- Since these stocks are traded all through the day, you can purchase and sell at any time. This feature is unlike mutual funds which you can trade only after the market closes, once a day.
- The pricing structure is entirely transparent, investors can keep their finger on the pulse of the market and monitor changing prices in real time.
- If you go with passively managed ETFs, know that they have lower yearly expenses. These savings are ultimately relayed to the investors.
- Possibly, the biggest advantage is the tax liability. You can balance out capital gains against capital losses within the fund and minimize the taxes you’ll pay.
- Whether you wish to invest in traditional stocks, currency, commodities, or any other asset class, you’ll find an ETF in the category.
Why ETFs are Rapidly Gaining Traction
ETFs are attracting investor attention for various reasons. For starters, ETFs charge you a lower fee. If you were to compare the management fee across the different asset classes, the most striking difference is in the fee levied by purely active funds and mutual funds which charge higher fees.
Secondly, the 2019 ETF rule passed by the SEC has added to the tax benefits, making ETFs an attractive investment option. The rule has enabled more providers to bring ETFs into the market and within the reach of investors. Active fund managers may also offer customized baskets to purchase and redeem new shares.
ETF funds may own a broad range of financial assets such as equity, stocks, debts, bonds, currencies, commodities, futures contracts, bitcoin, and even, bullion. By investing in the ETF, you’ll purchase a share in the fund. However, ownership of the assets does not change hands. Depending on the specific class in which you want to invest, you can go for Commodity ETFs, Currency ETFs, and Bitcoin ETFs. Leveraged ETFs and inverse ETFs are other options you can consider.
Considering the wide array of investment products available in the market, investors can choose from instruments that best meet their requirements. However, it is advisable to understand how each option works before sinking your money into it.
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