Eroding an anachronism

Today is a timely moment for me to reflect on ETF: where they’ve reached and where they’re going.

Financial Times recently reported the total of all ETF at $9.9 trillion. What proportion is that of all stock markets? At the end of 2020 CNBC measured the total global value of markets at $95 trillion. Last month Statista reckoned $94 trillion. Those two independent sources being close enough for my purpose; ETF represent 10.5% of all financial asset value.

Are ETF dangerous? Could their rising popularity cause a collapse of stock markets? This article by Financial Times, describes how ETF coped with the impact of the pandemic. I can think of several black hats (eg crypto currencies and rampant inflation) more likely than ETF to trigger collapse of markets.

What are the prospects for ETF as an investment chassis? Very sound and mobile, I believe, for several reasons beyond cheapness and exemption from stamp duty. With the modern (esp millennial) lifestyle ETF fit very well: via digital trading platforms (eg AJ Bell) retail investors can on their smartphone trade with just a few clicks, and monitor instantly.

In addition, the international mood for ESG is now mainstream. For instance, trustees of pension funds are now accountable to their members for their scheme’s ESG investment principles. Themes relevant for the next couple of decades are easy enough to identify, and ETF enable us all to participate in them.

In the offing also is still more economy; commission-free trading and ‘fractional’ trading to support regular monthly investment. Anyone doubting the power of those two factors I invite to reflect upon the cumulative value to small investors of PEPs and ISAs these last thirty-five years.

I conclude ETF will continue to grow in popularity, and will continue gradually erode the power of expensive active fund managers.