Have you joined the ETF gold rush yet?Exchange-traded funds have exploded in popularity, offering a cheap and easy way for investors to buy and trade diverse baskets of assets.
But the rise of ETFs has introduced new risks for investors, innovation, and market stability. Yet they do still have the capacity to democratize investing, and a new generation of online brokers and mobile apps are focused on doing just that.
ETFs, essentially funds that trade like stocks, made it much easier and cheaper to own and trade big groups of stocks at once, on demand. Investors could diversify their exposure by buying entire baskets of securities—like one holding the stocks of every company in the S&P 500—without buying and selling the underlying individual securities. And they could avoid some tax consequences of those 500 individual transactions.
To a retail investor, they look a lot like index mutual funds and have fueled a shift toward passive investing. But as they have evolved, some experts have begun to worry about how they’re affecting the world’s capital markets.Exchange-traded funds (ETFs) have captured 10% of global markets’ $51.4 trillion in assets. The top five ETF issuers—including BlackRock and Vanguard—manage $3.8 trillion of these assets. More than 400 smaller investment management companies share the remaining $1.3 trillion.
Whether you’re considering investing in ETFs or you’re a skeptic, check out a recently published field guide on ETFs—which includes:
Everything you need to know about the rise of ETFs and why some market watchers are worried.
A quick read on how ETFs have shrunk the stock market.
A presentation with slides made for you to ‘steal’ about how the ETF explosion transformed global markets.