Etf Market GrowthMarket growth
Looking at the growth of the ETF sector
A listed ETF is a type of investment vehicle that provides a flexible approach to dealing, reduces costs relative to investment trusts, is efficient in terms of taxation and provides a wide range of investment portfolios. As a result of these developments in the United States, the attractiveness of the ETF has increased further since its launch in 1993.
Investors considering two types of investments, an active management unit trust or similar ETF, are likely to be well advised for the latter. This is mainly due to viability, which is one of the main drivers of ETF growth. First, in total return term, the most active IFs do not exceed most benchmarks, even over a longer timeframe.
Secondly, and perhaps more significantly, in general the cost ratio of an ETF is much lower than that of an investment trust. A typical stock market investment company calculates between 1 and 1.5% of expenditure. Any 1% discrepancy in the cost rates for a $10,000 investment in investment trusts or an ETF can mean a much greater variance in return.
In the case of an investment or ETF with an average yield of 5% per annum, an expenses rate of 1.5% compared to 0.5% will reduce an investor's net gains by an extra 20%. In addition, investment trusts provide more elasticity and solvency than investment trusts because they are tradable like equities throughout the entire trade date, as distinct from investment trusts that can only be purchased or disposed of at net value (NAV) at the end of the trades.
They also have the benefit of facilitating easy entry to a greater diversity of facilities. Investmentfonds were set up exclusively for the sole aim of compiling a diverse equity fund portfolios. Reflecting the evolving nature of the world' market, investing in developing countries, commodity markets, currency markets and various derivatives. More than 1,500 exchange-traded securities (ETFs) are traded on the US market alone.
In 2013, Deutsche Bank published a statement in which it stated that ETF asset growth had exceeded 28% over the year. This growth spurt was driven by the US market. The ETF market in the United States recorded an unparalleled influx of around USD 210 billion in asset value in 2013.
At the end of the year, ETF holdings increased by almost 30% year-on-year, with ETF holdings totalling almost $2 trillion. The growth of exchange-traded investment trusts continues to be stronger than that of investment trusts. As of 2000, the growth in the percentages of ETF tied asset values has risen by over 2,500%, versus an average 120% rise for investment fund asset holdings.
Nevertheless, the overall amount of invested money tied up in IFs is still a dwarf, more than ten times the amount tied up in fund assets, which suggests that fund assets will remain growing at a significant rate of 15 to 30% per annum over the next five to ten years. By 2015, more than 7,000 unit trusts will be available versus less than 2,000 fund units, which suggests that the ETF market still has room for huge growth.
US dominates the ETF market globally. About 75% of all ETF worldwide is owned by US tradable companies. By 2014, three companies will be the dominant emitters in the country's ETF market: Taken together, these three emitters control more than 80% of the market. iShares mutuals launched by BlackRock have made significant progress, particularly among private individuals.
Just the fact that few issues are dominating the ETF market means that there is still much scope for creating extra ones as other issues are increasing their number of offers. Revenues and the continuing growth of the ETF market as well as the performance of the dominating emitters led to early entry of wealth management firms such as JPMorgan Chase & Company, Wells Fargo Corporation and Goldman Sachs into the ETF market.
The Goldman Sachs Group pioneered proactively administered equity funds by submitting to the Securities and Exchange Commission (SEC) approval for the issuance of a number of proactively administered equity funds, its first funds being the Goldman Sachs Equity Dividend Funds. One of the main reasons why large mutual funds are interested in an ETF is as easy as the opportunity to provide affluent customers with extra investments product.
Major ETF -linked asset growth has been driven by large scale investor activity. It is almost generally agreed that the ETF sector will still see double-digit growth in the coming years. The ETF sector is predicted by many to outperform the asset under manager (AUM) sector of a hedge funds market in the near-term.
A growth in both user and use of the ETF is foreseen. Increased competitive pressure between funds should drive the further emergence of new ETFs, as should the wish to align them more closely with the objectives of different investor investments. ETF market in the USA is probably the most ripe.
Europe's market is somewhat fragmentary in geographical terms and subject to extensive regulation. Amendments to the rules for an ETF that allow the establishment of a more homogeneous ETF market could result in an explosion of the ETF market in Europe. However, the fast pace of ETF growth in Asia indicates that it could outperform the ETF market in Europe within the next ten years.
At Greenwich Associates, we carried out a poll to see how typical types of corporate investor use their ETF. One of the most frequently cited uses of the ETF s by institutions is passively engaging in key strategy and almost half of respondents to the poll said they used the ETF to round off and diversify portfolio holdings.
With the ETF sector continuing to expand, more finance experts will become acquainted with the ETF and therefore more customers will be offering exchange-traded ETFs. In addition, the growing number of issues and emerging markets will further attract more interest and wealth from private individuals.