Exchange Traded Funds, or ETFs as they are more commonly referred to, were developed in the 1990s to provide a vehicle for individual investors to access indexed funds. The first ETF, which tracked the US S&P 500 stock market index, was launched in 1993, and it still going strong today. So strong, in fact, that in the subsequent 30 years since the fund was launched, its assets under management have grown to half a trillion dollars.
The phenomenal growth in the size of the fund is representative of the expansion of the entire ETF industry over that time. Growing from a single fund in 1993 to 8,754 ETFs by the end of 2022, with a correspondingly colossal assets under management of $11.7 trillion in February this year according to research firm ETFGI.
From the first equity-based index tracker, the range of asset classes available to ETF investors has expanded to include bonds, commodities, currencies (including cryptocurrencies now), blended/multi-asset, alternatives such as private equity or hedge funds, and also ESG focused/sustainable versions.
Moreover, investors are no longer constrained to just passive equity index ‘hugging’. There is now a myriad of themes within each of the main ETF categories. Investors can choose an investment style, a specific region or geography, company sector, type of bond, most favoured natural resource, the list goes on.
As the name suggests, ETFs are traded on an exchange and investors can buy or sell units in the fund at any time during the trading day, much like an individual equity share. And much like shares, investors can buy, sell, and hold ETFs using an investment platform.
Many ETFs attract low investment fees, particularly those now ubiquitous index trackers, while others employing more complex strategies or esoteric investments will likely have higher fees. Overall, however, fees tend to be lower than actively managed pooled funds.
So, outside of the range available, ease of access, and competitive fees, another of the benefits of ETFs for many of our clients is that they will not fall foul of the statutory override on pooled fund investments when the current extension ends on 1st April 2025.
With interest rates still elevated, returns from investing in cash will likely remain high in the near-term. However, we continue to believe there remains a case for long-term investing on both an income and capital growth basis, particularly when rates start to decline, and to this end we are currently investigating ETF related options that we believe may benefit our clients.
We will keep our clients updated on this, but in the meantime should any readers wish to get in touch to discuss how our current, or indeed future, investment advice could help them please do contact us at info@arlingclose.com.
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