The exchange traded fund passive investment vehicle now makes up a major portion of trading volume in American exchanges.
After being disappointed with active managers’ ability to pick stocks that consistently beat the broader market, investors have steadily shifted toward passive investment strategies, like index-tracking funds and ETFs.
Global inflows averaged more than $12,000 a second last year, notably in the U.S. where tax and cost advantages drove investment demand, reports Robin Wigglesworth for the Financial Times. Investors also targeted equity-related passive funds as it is easier to structure cheap ETFs that accurately track the market.
Meanwhile, traditional actively managed open-end mutual funds experienced outflows of a cumulative $1.2 trillion since 2007, whereas inflows into index trackers and ETFs have topped $1.4 trillion over the same period.
The percentage of U.S. equity trading that is made up of ETFs is still below pre-crisis peak in value terms, but it has steadily increased since 2014 and set a new record in volumes in 2016.