ETFs are seeing a record surge in popularity.
The industry hit a milestone with greater than 3,000 ETFs trading concurrently for the primary time ever this month — a 30% increase since December 2020, based on Morningstar.
And this yr investors are taking more lively strategies, comparable to single-stock ETFs that supply traders exposure to the every day performance of a singular stock like Tesla or Apple.
“We began off with principally taking very broad index funds — SPY [SPDR S&P 500 ETF Trust] was the primary one — after which the industry over time built all these interesting overlays,” Nick Colas, co-founder of DataTrek Research, told Bob Pisani on CNBC’s “ETF Edge” this week.
Included were sector and emerging funds, in addition to funds specified to themes comparable to clean energy and legal marijuana, Colas said, as a part of a shift from disruptive innovation to mainstream.
“Investors now are really spoiled for alternative amongst just with the ability to pick not only the massive sector funds or the massive overall funds but any form of fund they think is likely to be interesting,” he added.
Nevertheless, this move toward specificity of thematic ETFs like cybersecurity ETFs has its risks, based on investment consultant Charles Ellis, the writer of two upcoming books, “Inside Vanguard” and “Figuring It Out.” While Ellis believes those that go into ETFs to later dive into index funds will do advantageous, those selecting highly specialized ETFs are prone to making disastrous mistakes.
“The more you get specific, the more the percentages are high that you simply won’t give you the option to make a rational long-term decision and you’ll get suckered into making, because we’re all human beings, an emotional short-term decision, and you will not just like the final result in the long term,” Ellis said.
With quick growth within the variety of ETFs, investors will soon rejoice one other milestone. In January 2023, the primary ETF — SPDR S&P 500 ETF Trust — will turn 30 years old. Now the most important ETF and one in all the world’s largest funds, SPY is valued at $350 billion in assets under management.
Colas said SPY was exactly the appropriate product to start out with, unlike emerging market ETFs which had lousy returns after its boom and bust cycle.
The expansion of ETFs and more lively funds stems partly from people in mediocre mutual funds converting to ETFs, said Pisani. Colas said there are fewer associated fees with ETFs than mutual funds, in addition to less of a tax liability.