Exchange traded funds are becoming a household name as investors have been piling into the investment vehicle, expanding the global ETF market toward $3 trillion in assets.
After attracting an additional $36.1 billion, global ETFs saw $97.2 billion in inflows over the first quarter, or almost triple the total for the same quarter year-over-year. [ETFs Haul in $36.1 Billion in March]
As of the end of February, assets invested in exchange traded products, which include both ETFs and exchange traded notes, globally reached a new record high of $2.919 trillion.
“The global ETF/ETP industry had 5,632 ETFs/ETPs, with 10,902 listings, from 245 providers listed on 63 exchanges in 51 countries,” according to ETFGI’s Deborah Fuhr. “We expect the assets to break through the US$3 trillion milestone in the first half of 2015.”
The sudden growth of ETFs reflects their popularity among investors who have sought a more efficient alternative to costlier mutual funds. ETFs offer low costs, transparency and greater liquidity and tax advantages than mutual funds. Additionally, investors are able to access ETFs through a brokerage account during the day, like a company stock. [What an All-ETF Portfolio Does for You]
Now, after a significant reduction in market volatility as central banks implement aggressive monetary policies, passive index-based ETFs have expanded fourfold since 2007, reports Joel Lewin for the Financial Times.
“With central bank intervention in Europe and the States, in the last couple of years individual stocks are increasingly moving in line with each other so beta heavy strategies, which rely more on underlying market movements, have been popular,” Simon Colvin, vice-president at Markit, said in the FT article.
For instance, the largest ETF, the SPDR S&P 500 ETF (NYSEArca: SPY), which passively tracks the S&P 500 index, has grown into a $179.3 billion behemoth, with an average daily volume of 111.2 million shares.
Additionally, with innovative strategies and products still hitting the markets, ETFs could continue to expand. For instance, the relatively new currency-hedged equity funds had a record month in March, gathering $13.4 billion in inflows as investors focused on overseas growth while mitigating the negative effects of a stronger dollar.
For more information on the ETF industry, visit our current affairs category.
Max Chen contributed to this article.