As the popularity of exchange traded funds (ETFs) has surged, they have developed into an excellent investment tool. When first introduced, ETFs were used to track equity indexes.
Today they track equity, fixed income, commodities and currencies.
ETFs were relatively quiet until they grabbed global attention. Today, it is estimated that $700 billion in assets reside in ETFs listed worldwide, and this number could get as high as $1 trillion by the end of 2009 and $2 trillion by 2011, states Leandi Cameron of Mining Weekly.
What is fueling this trend toward ETFs? There are obvious reasons like diversity, tax efficiency, low cost, and the characteristic of being able to be traded on stock exchanges. Another reason could be the overall trend towards passive investments. Lately, there has been a tremendous outflow of assets away from mutual funds toward alternative investments.
A power indicator of ETFs can be seen through the pivotal role they play in several foreign economies. In South Africa, there are 17 different ETFs worth an estimated $1.4 billion. The recent drop in platinum prices is being blamed in part on ETFs and other investment funds in South Africa as investors scurried to get out of the metal and into cash.
With the continutation of newly created ETFs, their appealing characteristics, and well-informed investors, there is a bright future ahead for them.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.