The evolution of exchange-traded funds
In the three decades since their introduction, exchange-traded funds (ETFs) have become one of the “go to” investment vehicles for many institutions, financial professionals, and individuals alike. Originally created in response to the rising popularity of passive index investing strategies, ETFs were designed to offer a less costly, more liquid and simpler alternative to mutual funds for investors seeking to closely track a particular index’s performance.
The seed of that idea has blossomed into over 3,000 ETFs in the U.S. today covering almost every aspect of the market—from stocks and bonds, to specific sectors, foreign exchanges, and even bitcoin and digital assets.
Actively managed ETFs are another potential growth area. Assets in actively managed ETFs in the global market grew 37% in 2023. 1While most ETF assets still reside in passive ETFs, the growing adoption of actively managed strategies reinforces that investors value the transparency, tax efficiency, and liquidity of ETFs.
Bottom line: Even though ETFs have come a long way already, their best days may still be ahead. Among U.S. asset managers, 74% believe ETFs are a large opportunity. 2Meanwhile, ETFs ranked third among the top 10 investment products to grow in popularity with U.S. households since 2020. 3We think the future could be bright for ETFs.
Footnotes
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1
“Actively Managed ETF Assets Soared 37% in 2023,” ETF.com, 2/6/2024.
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2
“ETFs viewed as large opportunity by 74% of US asset managers, poll says,” Financial Times, 10/18/2023.
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3
“Exchange-traded funds are among the top 3 investment products that got more popular from 2020, survey finds,” CNBC.com, 11/13/2023.
Important information
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Investment involves risks. The value of investments, and any income from them, will fluctuate. This may partly be the result of changes in exchange rates. Investors may not get back the full amount invested. Past performance is not indicative of future performance.
There are risks involved with investing in Exchange-traded Funds (“ETFs”), including possible loss of money. Index-based ETFs are not actively managed, and the return of index-based ETFs may not match the return of the Underlying index. Actively managed ETFs do not necessarily seek to replicate the performance of a specific index. Both index-based and actively managed ETFs are subject to risks similar to those of stocks, including those related to short selling and margin maintenance requirements. Ordinary brokerage commissions apply. Equity risk is the risk that the value of equity securities, including common stocks, may fail due to both changes in general economic and political conditions that impact the market as a whole, as well as factors that directly related to a specific company or its industry.
