They say a picture is worth a thousand words. If that’s the case, I’ve put together a novel here. Below are my favorite ETF-related charts. While there are still a few words, the pictures tell quite a story. Enjoy!
Any ETF pictorial must begin with ETF growth.
ETFs have helped lower the cost of investing.
Source: Bloomberg Gadfly
As ETFs have grown in popularity and lowered investment costs, mutual fund fees have come under pressure.
Source: Financial Times
ETF growth is not simply a “fee” story, but also one of performance – or more specifically, the underperformance of actively managed mutual funds.
ETF vs. Mutual Fund Growth
The combination of lower fees, tax efficiency, transparency, trading flexibility and active fund underperformance has fueled the rise of ETFs compared to mutual funds.
Large Asset Managers & ETFs
Forward-thinking asset managers have embraced ETFs, while other asset managers are still depending on an old, disrupted business model.
The ETF Battleground
While a growing number of asset managers are embracing ETFs, the landscape is dominated by three big players: iShares, Vanguard, and StateStreet.
Source: Virtu Financial
Core, Low Cost ETF Exposure
Competition among the largest ETF providers is fierce, particularly within core asset ETFs (broad U.S. stocks, bonds, international stocks, etc.) where investors are flocking to the lowest cost products.
Strategic (or “Smart”) Beta ETFs
It’s not just core, low cost ETFs experiencing growth. ETFs focused on alternatively weighted strategies, factors, and/or other unique methodologies are one of the fastest growing segments of ETFs. Smart beta is the automation of active management.
Top 25 ETF Issuer 2017 Growth Rates
While the ETF landscape is dominated by the largest providers, there are many ETF issuers experience rapid asset growth.
As ETF providers jockey for position, the aggressive competition is driving innovation. The result is a growing number of both new ETF launches and closures as providers try to determine what investors want.
Mutual Funds Close Too
The media likes to focus on ETFs closures, but – surprise(!) – mutual funds close too.
95% of Media Attention is on ETFs Comprising 5% of Your Portfolio
Speaking of the media, they tend to focus on ETF launches in niche areas, such as video games, blockchain, or marijuana. While these ETFs receive the lion’s share of media attention, they should only represent a small fraction (if any) of your portfolio.
Source: Bloomberg TV, @EricBalchunas
Know What You Own
While ETF innovation has “democratized” access to institutional caliber strategies, that magnifies the importance of ETF due diligence. During February’s market turmoil, the VelocityShares Daily Inverse VIX Short Term ETN (XIV) went to zero. This product functioned exactly the way it was supposed to.
Source: The Wall Street Journal
Tradability of ETFs
The tradability of ETFs is sometimes portrayed as a bug, not a feature, because investors might overtrade to their detriment. However, while ETF assets are up around 8x since 2009, the average value of ETF trading has held fairly constant, indicating newer users of ETFs tend to be longer-term investors.
Source: Virtu Financial
ETF Trading Issues
As it relates to ETF trading, there’s a narrative that ETFs somehow haven’t been tested in times of market stress and will cave under pressure. However, “historically, we are looking at maybe 30,000 trades that had known issues out of 10 billion!”
Source: Bloomberg View
Millennials Love ETFs
Millennials – known as highly educated, technologically savvy, and cost conscious – are embracing ETFs.
Source: Business Insider
Early Innings of ETFs…
Despite their remarkable growth, ETFs still represent only a fraction of total fund assets.
…However, the Future is Bright
At some point in the not too distant future, ETFs are expected to surpass mutual fund assets.