Exchange Traded Funds: Evolving Safe Haven for Private Investors
It would be an understatement to say that there has been a great deal of uncertainty on Wall Street lately. High stock volatility and the failure of the economy to bounce back as quickly as hoped has left many private investors looking for safe asset classes. For many, exchange traded funds (ETFs) provide an island of safety in a sea of volatility. They account for more than a third of overall trade volume in the U.S., and provide investment opportunities to individuals that were available only to corporations in the recent past.
The highly uncertain economic outlook has prompted a huge surge in ETF popularity. These instruments may not offer the wild dividends that stocks or mutual might offer; but in uncertain times, people become risk-averse and prefer to invest in instruments that generate a predictable return. Low maintenance fees and tax advantages have combined with low risk to fuel a growing interest in ETFs among investors of all stripes.
There are ETFs associated with a variety of assets, such as tin, copper, gold, and oil. In addition to these resource-specific investment products, more than twelve broad-based commodity ETFs are now available as well. These products are ideal tools for the savvy long-term investor who wants exposure to commodities futures. Once considered a fad, exchange traded funds have come into their own; they continue to evolve and attract a broad base of investors.
A critical element in that evolution has been the international reach of ETFs. Nearly all highly developed economies offer them, and more are coming online all the time. One country has emerged as a major player in international ETFs, and it should come as no surprise that that country is China. While some European economies are in freefall and the U.S. recovery is less robust than was hoped, China has emerged as a powerful force in the global economy. Once based almost solely on exports, the Chinese economy is increasingly driven by consumer demand. As a result, investment opportunities abound, and those opportunities include international ETFs.
Exchange traded funds were first introduced in Europe ten years ago. They have taken off in a huge way there, particularly in the UK. More than 1,000 ETFs have been brought to the European market since the year 2000, and have grown from $700m to $267.44bn AUM. In the UK, year-to-date ETF sales total £1.7 billion and are steadily increasing.
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