ETFs have reached an important milestone. 5 years ago no one would have believed that ETF investments would exceed those assets “actively” managed. Actively managed is traditionally thought of as someone managing your money “actively”, overseeing them and adjusting regularly. The assumption is that when a financial advisor chooses to put you into a mutual fund for example, you pay a fee to that advisor and to the mutual fund company so it can be “managed actively.” But this is something the advisor, or the mutual fund, may or may not be doing, or perhaps just annually for a re-balance. Hardly active.
Let’s be clear, ETF investments are becoming less and less passive. Over time, the structures that ETF issuers have been creating are becoming more sophisticated and actually change the investments frequently. As Tim Edwards of the index investment strategy team at S&P Global says: “The users of index-based products are more active than they’re presented to be.”
Most Hedge Funds more actively trade with their portfolio managers moving your money around, but most people can’t participate in a Hedge Fund and those that do pay a hefty premium for that service. However, while the fees are high, presuming a level of active investing, their track record hasn’t kept pace with ETFs that have tracked the market. This is probably why ETF investing has reached $4.3 Tn surpassing “active” investing at $4.2 Tn. They’re neck and neck.
Fist Full of Dollars
The presumed advantages of ETFs over mutual funds lie in ETFs being more economical. And while this is true, that can’t be the only reason why more people are moving their money into ETFs. The fact is that people move their money where it performs best. And, the level of fees has a lot to do with overall performance, especially over time.
We also know that people want to be in control. With the rise in technology, we’re more connected and more aware of everything going on around us. This trickles down to where and how to invest our money, which is why we built our ETF Miner. It gives individual investors control to search ETFs on their own, by category of interest and investment priorities, putting them in the driver’s seat.
Essentially you’re going through a similar exercise your well-paid financial advisor is going through. But, by doing it yourself, you can learn more — and more importantly — save money on fees, which has a big impact on your eventual nest egg.
We’ve built our business on this trend continuing and the market seems to indicate that we haven’t seen the ceiling for ETFs.