Are ETFs taking over the world?
Yes, according to David Tuckwell from ETF Stream
ETFs have grown rapidly both internationally and here in Australia as investors have been attracted to their low cost, transparency and tax efficient characteristics, as well as the fact that there are funds that cover all asset classes and markets around the world.
With the size of the ETF market sitting at A$9.25 trillion as at end of July 2020, their popularity is undeniable. In fact – with Australia’s current GDP at A$2 trillion, there is essentially ‘four Australias in ETFs globally’. Their growth trajectory in Australia alone is 45% p.a but their popularity hasn’t been limited to countries with established stock exchanges. They are even growing in some of the most unexpected parts of the world such as Russia, Indonesia, Malaysia and Namibia.
So, is it fair to say that ETFs are taking over the world?
During his interview with Phil Pilgrim on the Locked Down Adviser, Tuckwell started that ETFs were “growing because the governments around the world essentially want them to.”
But what exactly did he mean by this?
Explaining his statement, Tuckwell said, “Don’t get me wrong – there’s no conspiracy, no meeting – they haven’t sat around an oak desk and said “let’s make the ETF industry grow” – no, not at all. They’ve just implemented regulations for which there has essentially been no alternative outcome. The most important of these regulations that has helped the ETF industry grow has been regulations around commissions.”
Tuckwell continued, saying that the banning of commissions paid out on both open ended and closed ended mutual funds post GFC, triggered a huge migration to ETFs which have never paid commissions and charge very low fees.
Tuckwell attributed these low fees as another reason why the popularity of ETFs is soaring, saying that “nowadays, investors have a much stronger eye and glance on how much fees they’re paying to money managers” and that with a “more fee-conscious investor base, ETFs which charge little of no fees fit the bill very well”.
Even with all these traits making them an extremely popular investment vehicle at the moment, Tuckwell reminded the Locked Down Adviser audience that ETFs aren’t a “Harry Potter Product” – meaning, they don’t magic bad investments into good investments and that they’re only as good as the things they buy.
For more jewels of ETFs knowledge from David Tuckwell, click here to view the full session of “Are ETFs taking over the world?”.