Since its inception into the capital markets, exchange-traded funds (ETFs) have carved out its own niche, which in turn, have allowed them to grow exponentially and with that rise, industry changes are abound. Douglas Yones, Head of Exchange Traded Products at the New York Stock Exchange, witnesses firsthand what these changes are all about and is keen on where the industry is as well as where it’s heading.
Even as U.S. equities are currently experiencing bouts of volatility, one thing has been constant–the influx of investment capital into ETFs as Yones outlined in the latest “In The Know” update.
“We’ve surpassed $4 trillion globally in ETFs now,” said Yones. “The U.S. market is effectively booming. It doesn’t seem to matter what the markets around us are doing – ETFs are still getting cash flow.”
The Adaptability of ETFs
Because of their adaptability as an investment product, ETFs have experienced exponential growth with respect to capital flows. With over $120 billion in assets coming in domestically, that growth is expected to only continue as more ETFs enter the marketplace.
The proliferation of ETFs has allowed them to corner specific areas around the globe, including emerging markets, and while emerging markets have been decimated in 2018, Yones is still seeing an influx of capital into the EM space. The investor behavior speaks to the popularity of ETFs and investors willing to flock towards these products despite the underlying economic conditions in these areas of investment.
Whether an ETF is being used as a short-term tool for lightning-quick plays by day traders or as value plays by buy-and-hold strategists, the adaptability of the product is readily apparent.
“It says people are still leaving traditional investment funds and buying ETFs regardless of market conditions,” said Yones. “They’re using them not to just say, ‘Hey, short-term, here’s my strategy,’ they’re using them for long-term core holdings and it shows the growth of the ETF investment across everyone’s portfolio.”
Regulatory Changes on the Horizon
With ETFs growing at a rampant pace, innovation has been a byproduct and companies are finding new ways to accommodate the growth in this space. However, this accelerated growth means that more regulation may be necessary to maintain the ETF industry’s attribute of transparency.