Will ETF continue to grow?
Key Findings. PwC's Global ETFs survey results reflect heightened optimism among respondents about the continued growth and even greater opportunities for the global ETF market. Global ETF AuM is expected to exceed $19.2 trillion by June 2028.
EXPECT GROWTH TO ACCELERATE.
Global ETF assets are poised reach US$14 trillion by the end of 20241. Source: BlackRock, Global Business Intelligence, as of June 2021.
Nearly all leveraged ETFs come with a prominent warning in their prospectus: they are not designed for long-term holding. The combination of leverage, market volatility, and an unfavorable sequence of returns can lead to disastrous outcomes.
- In a $11.6 trillion global market, European ETFs accounted for $1.8trn assets under management in 2023, with 70% of funds domiciled in Ireland.
- European ETF market grew 28% in 2023, and is forecast to rise 15% annually from this year until 2030.
ETFs are considered to be low-risk investments because they are low-cost and hold a basket of stocks or other securities, increasing diversification. For most individual investors, ETFs represent an ideal type of asset with which to build a diversified portfolio.
Hold ETFs throughout your working life. Hold ETFs as long as you can, give compound interest time to work for you. Sell ETFs to fund your retirement. Don't sell ETFs during a market crash.
That's a new all-time high for active ETFs that signifies favorable growth potential in the future. In net asset terms, active ETFs have grown from $112 billion in 2019 to $509 billion in 2023—a 35% five-year compound annual growth rate. ETFs have experienced strong and steady inflows over the decade.
ETFs are subject to market fluctuation and the risks of their underlying investments. ETFs are subject to management fees and other expenses. Unlike mutual funds, ETF shares are bought and sold at market price, which may be higher or lower than their NAV, and are not individually redeemed from the fund.
Stock-picking offers an advantage over exchange-traded funds (ETFs) when there is a wide dispersion of returns from the mean. Exchange-traded funds (ETFs) offer advantages over stocks when the return from stocks in the sector has a narrow dispersion around the mean.
For most standard, unleveraged ETFs that track an index, the maximum you can theoretically lose is the amount you invested, driving your investment value to zero. However, it's rare for broad-market ETFs to go to zero unless the entire market or sector it tracks collapses entirely.
Do ETFs grow with inflation?
Dividend ETFs and other value-oriented ETFs generally outperform growth stocks during periods of high inflation, especially in the short term. The largest dividend ETF by AUM is the Vanguard Dividend Appreciation ETF (VIG).
Since the job of most ETFs is to track an index, we can assess an ETF's efficiency by weighing the fee rate the fund charges against how well it “tracks”—or replicates the performance of—its index. ETFs that charge low fees and track their indexes tightly are highly efficient and do their job well.
The single biggest risk in ETFs is market risk.
Interest rate changes are the primary culprit when bond exchange-traded funds (ETFs) lose value. As interest rates rise, the prices of existing bonds fall, which impacts the value of the ETFs holding these assets.
A lack of trading activity means the sale is made below the value it would have in a volatile market. Investors can choose to hold their ETFs for a return in action. Nonetheless, a decline in liquidity can mean a drop in value for both the short and long term, which makes investors more likely to sell.
| ETF | Assets Under Management | Expense Ratio |
|---|---|---|
| Vanguard Information Technology ETF (VGT) | $70 billion | 0.10% |
| VanEck Semiconductor ETF (SMH) | $16.3 billion | 0.35% |
| Invesco S&P MidCap Momentum ETF (XMMO) | $1.6 billion | 0.34% |
| SPDR S&P Homebuilders ETF (XHB) | $1.8 billion | 0.35% |
Over the past decade, you would have done even better, as the S&P 500 posted an average annual return of a whopping 12.68%. Here's how much your account balance would be now if you were invested over the past 10 years: $1,000 would grow to $3,300. $5,000 would grow to $16,498.
It's relatively simple: You add up all of your investments, and withdraw 4% of that total during your first year of retirement. In subsequent years, you adjust the dollar amount you withdraw to account for inflation.
In 1980, had you invested a mere $1,000 in what went on to become the top-performing stock of S&P 500, then you would be sitting on a cool $1.2 million today.
Active ETFs are growing faster than passive ETFs, with a 14% growth rate in the first half of 2023 for active compared to only 3% for passive, according to Morningstar. You can find actively managed ETFs in any of the following types of ETFs.
Do ETFs outperform the market?
ETFs are most often linked to a benchmarking index, meaning that they are often not designed to outperform that index. Investors looking for this type of outperformance (which also, of course, carries added risks) should perhaps look to other opportunities.
ETF providers, however, weren't patient with these strategies to build a track record. Their average age was around 2.6 years. In contrast, the average age for passive ETFs closed in 2023 was 5.9 years.
"Leveraged and inverse funds generally aren't meant to be held for longer than a day, and some types of leveraged and inverse ETFs tend to lose the majority of their value over time," Emily says.
The choice comes down to what you value most. If you prefer the flexibility of trading intraday and favor lower expense ratios in most instances, go with ETFs. If you worry about the impact of commissions and spreads, go with mutual funds.
| Schemes | Latest Price | Returns in % (as on Apr 05, 2024) |
|---|---|---|
| Motilal Oswal NASDAQ 100 ETF | 147.31 | 21.23 |
| Kotak NV 20 ETF | 138.41 | 20.31 |
| LIC MF ETF - Nifty 100 | 19.98 | |
| ICICI Prudential Nifty 100 ETF | 255.66 | 19.89 |
