ETF popularity hits record high

ETFs are seeing a record rise in popularity.

The industry hit a milestone with more than 3,000 ETFs trading simultaneously for the first time ever this month — a 30% increase since December 2020, according to Morningstar.

And this year, investors are taking on more active strategies, such as single stock ETFs that allow traders to learn about the daily performance of a single stock like Tesla or Apple.

“We basically started by taking very broad index funds – SPY [SPDR S&P 500 ETF Trust] It was the first — and then the industry over the years has built up all these interesting overlays,” Nick Colas, co-founder of DataTrek Research, told Bob Pisani on CNBC’s “ETF Edge” this week.

Colas said sectoral and emerging funds, as well as funds for topics such as clean energy and legal marijuana, were included as part of the shift from disruptive innovation to the mainstream.

“Investors are now really spoiled for choice between being able to choose not just large sector funds or large aggregate funds but whatever type of fund they think might be interesting,” he added.

However, this move toward the privacy of thematic ETFs like cybersecurity ETFs has its risks, according to investment advisor Charles Ellis, author of two forthcoming books, Inside Vanguard and Seeing It Out. While Ellis believes that those who go into ETFs to later dive into index funds will do just fine, those who opt for highly specialized ETFs are at risk of making catastrophic mistakes.

“The more specific you become, the more likely the chances are that you won’t be able to make a rational, long-term decision and will get bogged down in making it, because we are all human, an emotional, short-term decision that you won’t like the long-term outcome,” Ellis said.

Another teacher

With the rapid growth in the number of ETFs, investors will soon celebrate another important stage. In January 2023, the first ETF – the SPDR S&P 500 ETF Trust – will be 30 years old. Now the largest ETF and one of the largest funds in the world, SPY is valued at $350 billion in assets under management.

Colas said SPY is a perfect product to start with, unlike emerging market ETFs that have made poor returns after the boom and bust cycle.

Pisani said the growth of more active ETFs and funds stems in part from people at humble mutual funds who have switched to ETFs. Colas said there are fewer fees associated with ETFs than there are mutual funds, as well as a lower tax obligation.

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from San Jose News Bulletin https://sjnewsbulletin.com/etf-popularity-hits-record-high/