ETFs Enjoying a Great Run, But How Bright Is the Future? ETFs have become more popular as a result of various factors that have helped them enjoy an amazing run of growth. But what does the future hold?
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Advanced technology has made trading stocks a lot more desirable and convenient than before. With commission free trading and other such cool features offered by only broker dealers, there is greater motivation to get started. ETFs’ Amazing Run Exchange-traded funds (ETFs) are now becoming increasingly popular because of recent market shifts and interest rate cuts of the Federal Reserve for 2019. Following the new ETF Rule passed by the Securities and Exchange Commission (SEC) -- whereby regulations on “exemptive relief” were removed, and some price wars that played out, the ETF market recently rose to $4 trillion AUM (assets under management). Investors who wish to get their ETF portfolios expanded would find this great news since it indicates there could be more growth to come. It all seems positive. Still, it’s good to have a clear idea about the trends in the ETF market that investors need to note. Investopedia’s Irene Huhulea makes certain observations. More Growth Expected in Coming Years Among the observations made are that ETFs could continue to experience growth in the coming five years. ETF.com managing director Dave Nadig, though, says that in the coming 20 years ETFs could experience declined expansion. But he does clarify that this won’t affect ETF performance in general and that investors can expect continued growth in the immediate and near future at least. Thinking in the long term though, depending on how popular direct indexing platforms get, the perspective of investors towards ETFs and their portfolios could change. Through the next decade though, Nadig believes that the one thing investors would witness is constant growth. He estimates that the next 5 years could witness ETFs even surpassing mutual funds in the United States. The key factor contributing to that would be the value proposition offered by an ETF - low-cost beta characterized by tax efficiency, trading ease and transparency. Those factors are likely to stay.
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More Competition Expected from Asset Classes in Future However, when Nadig looks far ahead, he sees high-tech platforms with their user-friendliness and efficiency making various assets appear attractive. These platforms could lead to asset management firms competing against each other and investors re-thinking their overall portfolios from a different perspective. These alternative platforms could make the difference, and these are actually the result of greater technological trends that could alter the financial landscape. The massive changes that are likely to come could first affect the smaller companies, reckons Nadig since this space is dominated by these smaller financial companies who don’t expect any competition with the larger firms. But the smaller companies, with their low-cost beta, would have an advantage initially. Since ETFs are now experiencing massive growth, they could be quite attractive for investors who want to diversify portfolios without having to spend more time and effort on asset management. But as the financial services segment continues to be disrupted and reshaped by new technologies, nothing can be predicted in terms of long-term ETF future. It helps to have a clear idea about future investment options. With zero brokerage trading offered, it doesn’t take long to convince yourself to start trading.
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