ETFs are becoming the investment vehicle of choice, says market expert


Since their inception, exchange-traded funds (ETFs) have provided the capital markets with a dynamic investment vehicle that rivals mutual funds. With space only growing exponentially, the ETF will become the investment vehicle of choice, according to Stephanie Pierce, CEO of ETF and BNY Mellon Investment Management’s index business.

“I would actually say that ETFs have seen tremendous growth from a variety of these trends that you mentioned,” Pierce said in a Yahoo! Financial interview. “If you just look at today’s numbers, ETFs are worth over $ 4 trillion in the US alone and just hit $ 7 trillion globally. So, at the current rate, ETFs are expected to outperform mutual fund assets, which have been around much longer, in just over three years. We therefore see ETFs becoming the investment vehicle of choice for many investors, both for advisers and for individual and institutional clients.

“It is probably more important that orderly trading of ETF markets enables investors to manage their exposure to fixed income securities, despite the inability to buy or sell individual fixed income securities. If you think of a functioning fixed income market, most liquid corporate bonds trade about a dozen or maybe two dozen times a day, “Pierce added.” ETFs trade much more frequently. So, When you saw the liquidity problem in March, ETFs became the only tool for price discovery.So for example, if an ETF was trading at a 5% discount to the net asset value, that told you that the bond prices themselves were out of date, and that we’re actually 5% higher than where the market really thinks they should be trading when things get back to normal. “

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New ETF investors looking to get into the space can start with funds like theETF SPDR S&P 500 (NYSEArca: SPY). SPY offers investors a global fund that seeks to mirror the movements of the S&P 500.

Because the fund is traded so widely, its liquidity makes it perfect for traders looking to enter and exit with the utmost ease. Conversely, it is also suitable for buy and hold investors looking to hold SPY for the long term.

Anyway, here are some of the main features of the fund:

  • The SPDR® S&P 500® ETF Trust seeks to provide investment results which, before charges, generally correspond to the price and performance of the S&P 500® Index (the “Index”)
  • The S&P 500 Index is a large-cap diversified U.S. index that holds companies in all eleven GICS sectors
  • Launched in January 1993, SPY was the very first ETF listed in the United States

For more market trends, visit ETF Trends.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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