Are ETFs a good investment?

Nathan, widely known as ‘Nate,’ is often called the Father of Exchange Traded Funds(ETFs). He was the inventor of the first Exchange Traded Fund, thus leaving an indelible mark on the industry.  

Nathan successfully developed an ETF after six years of hard work and toil. He launched the most successful ETF in 1993, i.e., the Standard & Poor’s Depository Receipt, better known as the Spider or SPY.  

The number of ETFs has grown significantly since then. As of 2020, more than 700 Exchange Traded Funds are available globally. 

Let’s now look at how the industry has grown over a while.  

The total ETF assets grew almost ten times in 2010. ETFs have galloped the psychologically significant $10 trillion Assets Under Management (AUM) mark.  

Assets Under Management is the total market value of investments that a person or an entity manages for the investors. To visualize this figure- India is a $3.1 trillion economy.  

Thus, the AUM of ETFs worldwide is approximately more than thrice the size of the economy of India! According to BlackRock, Global Business Intelligence, the ETFs are slated to grow to a potential of $14 trillion by 2024. 

The biggest ETF companies control most AUM in the ETF world. The biggest companies, according to the size of their AUMs, are as follows:  

1. iShares: iShares is a subsidiary of BlackRock Inc., the global leader in assets management. 

2. Vanguard 

3. State Street Global Advisors, the asset management business of State Street Corp., issues State Street SPDR- ETFs.  

4. Invesco: Invesco Ltd manages it. 
5. Charles Schwab: The Charles Schwab Corp issues ETFs.

Parameter	iShares	Vanguard	State Street SPDR	Invesco	Charles Schwab
Assets Under Management	$1.8 trillion	$1.3 trillion	$771.7 billion	$260.2 billion	$170.2 billion
Number of ETFs Offered	372	80	139	218	25
Revenue	$3.5 billion	$45.0 billion	$1.3 billion	$764.4 million	$125.3 million

According to the 2021 Global ETF Investor Survey of the global ETF market, the United States of America represents over 70% of the Assets Under Management, followed by the European Union and Greater China (The Greater China area includes Taiwan, Hong Kong, Macau, and mainland China).

Source – EduFund research team, 2021 Global ETF Investor Survey.

The Assets Under Management of the Exchange-traded funds in the USA crossed $5 trillion in 2020 compared to a measly $102 billion in 2002.

In India, Exchange Traded Funds have also gained popularity amongst investors. Even though the Indian market is small compared to the heavyweight Americas and Europe, it’s still gaining traction and has a promising future.  

ETF assets under management have doubled from 1.54 lakh crore at the start of FY21 to 2.9 lakh crore at the end of FY21, according to SEBI reports. India has a long way to go before it can be considered a mature ETF market. 

The majority of the ETFs invest in stocks; however, investors have several options, including exposure to debt instruments, commodity derivatives, real estate, currencies, etc.  

The ETFs can also have a combination of several asset classes.

According to ETF Database, most ETFs have underlying asset exposure.

Thus, the ETFs have a bright future, have grown manifold, and continue to grow. Some factors that will make this instrument a promising proposition are that its investors are pretty active in the market and are very sensitive to cost.  

According to the 2021 Global ETF Investor survey, the ETF allocations continue to rise and shine despite the ongoing pandemic.

The majority of the respondents in the research had exposure to active ETFs (An actively managed ETF is one that has a benchmark index), also, thematic ETFs are going mainstream.

Consult our ETF expert advisor to discuss the right plan for you.