Investors have been quick to realize the value in ETFs amid a lackluster bond market and high-priced mutual funds. Evidence of this can be seen in the S&P 500 rallying 2.4% to 1,744.50 last week after Congress reached an agreement to the budget impasse, soaring past the all time high we saw on September 18th before budget concerns sent the index tumbling nearly 4.1%
With the eased trading ability that comes with the ETF investors are able to capitalize on many advantages in a still secular volatile market; ETFs regardless of the underlying components can be traded just as a run of the mill equity would be offering more flexibility, and they often offer lower expenses relative to their mutual fund counterparts.
Assets in U.S. ETFs alone have almost tripled to $1.5 trillion in the last five years, according to data from the Investment Company Institute, a Washington-based trade group. About $284 billion was drained from actively managed mutual funds in the same period, data from Morningstar Inc. show.
According to Bloomberg data, funds that specialize in U.S. stocks received $12 billion in October after $14 billion last month. The SPDR S&P 500 Trust (SPY) had the biggest inflows at $6.7 billion last month. The iShares Russell 2000 ETF absorbed $2 billion, and the iShares MSCI Emerging Markets ETF received $4.5 billion.
So what’s the takeaway? ETFs are booming as many investors and enjoy the flexibility in trading and those who may be weary of future interest rate risk and excess volatility can enjoy a nice little piece of many pies without taking large bets on one or two players in their sector allocations regional focus.