Exchange-traded funds —more commonly known as ETFs — have transformed the financial landscape, according to an update shared by eToro.
And lately, ETFs actually became a beacon “for everyday investors as they navigated rising rates and inflation,” the eToro team noted.
Investors have reportedly “poured $610 billion into US equity ETFs and $332 billion into US bond ETFs since the end of 2021 — with $408 and $196 billion of that being in 2022, despite stock and bond prices falling more than 10% that year (as of 12/31/22).”
eToro added that they’ve seen the same phenomenon on their own platform, “as ETF volumes on eToro’s global site grew throughout 2022.”
eToro notes in a blog post that people think everyday investors “have given up on the market, but they’ve noticed the opposite.”
Investors used an especially calamitous environment “to learn more about how different investments work, and ETFs seem to be at the forefront of their strategies.”
eToro says they wanted to know why people “are leaning into ETFs so much these days.”
So, they turned to the specialists — iShares, the ETF arm of BlackRock and the world’s largest ETF provider, “with over $3 trillion in assets under management.”
Here’s what Gargi Pal Chaudhuri, head of iShares Investment Strategy and Markets Coverage, said about why everyday investors have “embraced ETFs in such unpredictable times and what that could mean for the future of investing.”
As noted in the update, investors tend to “embrace ETFs for liquidity during volatile markets. Because ETFs trade like a stock, they offer investors the ability to move in and out of different exposures when it makes the most sense for them.”
While markets spiraled back down to earth in 2022, ETF usage “soared as the investment vehicle of choice amid this volatility. ETFs as percentage of total equities traded on exchanges averaged 32% for the year — a significant step higher than the 25% from the previous four years.”
As explained in a blog post by eToro, by combining the diversification benefits of mutual funds with the ease of stock trading, ETFs are able “to provide investors with a simple way to access various investment opportunities and to navigate a fast-changing market environment.”
The update also mentioned that “with elevated interest rates and a slowdown of inflation (as measured by Core CPI) in 2023, we have seen investors move up in quality in both equity and fixed income allocations using ETFs. For example, US investors have added more than $28 billion into quality-focused ETFs as of the end of October.”
Investors also added more into fixed income ETFs with the “yield reset.” Fixed income ETFs have attracted $151 billion “from investors this year, with massive inflows into Treasury ETFs across different maturity terms.”
As we continue to see uncertainty in 2023 driven by rising yields and increased geopolitical tensions, investors have “managed investment risks using defensive ETF strategies such as minimum-volatility factor ETFs.”
At iShares, they do “not necessarily see ETFs and stocks as a zero-sum game. Both may be able to play an important role in investors’ portfolios. In addition, there are key differences between individual stocks and ETFs that investors may want to be mindful of, including the fact that with an individual stock, an investor actually owns that stock, but investors in an ETF do not own its underlying holdings (i.e. the securities within the ETF).”
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