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.
ETFs now make up about 30% of all U.S. trading by value and 23% by share volume. According to Credit Suisse, overall ETF trading volume was up almost 17% last year after rising 50% in 2015. In contrast, the U.S. stock trading volume is only up 7% from 2014.
Among the top 10 most actively traded securities on U.S. stock markets last year, seven were ETFs. Only three ETfs were in the top 10 most actively traded securities list in 2013.
The SPDR S&P 500 ETF (NYSEArca: SPY) was the second most actively traded security in 2016, just falling short of Bank of America (NYSE: BAC). However, by value traded, SPY remains the top player, beating out Apple (NasdaqGS: AAPL), the world’s most valuable company.
For more information on the ETF industry, visit our ETF performance reports category.