Global ETFs: advantages of passively managed funds
The BlackRock investment company conducted a market study. According to the result, global ETFs are gaining popularity, but the share of assets in them is still small compared with investments in stocks and bonds.
Demand for exchange-traded funds ETFs increased substantially during the pandemic. In May 2020, assets in them rose to a record $9 trillion. As for BlackRock itself, its investments totaled $3 trillion. At the same time, analysts say that this trend is only gaining momentum, and investments in such funds will increase for at least another 20 years. It is expected that by 2025, investment volumes will grow to 15 trillion dollars.
ETF is an index fund with a portfolio consisting of stocks and bonds bought with investors’ money. Each such fund has its own strategy that it adheres to. For example, an ETF might track the S&P 500 Index and base its activities on it. Funds also buy securities of dividend companies. ETFs differ from mutual funds in that their shares are listed on the stock exchange. Buying securities of such a fund, a businessman can invest in all companies that are represented in it, and the share in each will be small. This option allows one to invest even in those corporations whose securities are expensive if one acquires them on one’s own. For example, one share of Amazon would cost $3,350. At the same time, when making transactions through ETFs, the client pays a minimal fee. The largest such funds on the market are Vanguard and BlackRock, which owns the iShares division. In the spring of 2020 the stock markets experienced a rally of record strength and duration. The ETF segment showed good growth in this fund, which was caused by changes in investor preferences. The latter are increasingly interested in funds with passive investments. The fact is that variants with active management have a number of nuances, which often lead to inconsistent activity. In addition, the fees here are higher than for ETFs.
BlackRock’s fund has had nearly $124 billion in capital inflows in the past 5 months, up from about $37 billion last year. Investments in the Vanguard fund totaled $161 billion, double the previous period’s $66 billion.
Experts believe that the ETF segment is only gaining momentum, and it will become even more popular in the near future. While the greatest activity of such funds is currently observed in the U.S., in the future demand for them will significantly grow in Europe and Asian countries. And that means that the position of traditional actively managed funds may decline.