According to the research and consultancy provider ETFGI, the assets managed by index products (ETF/ETP) broke a new record at the end of July, with $5.12 trillion. This is evidence of an unambiguous direction that investors are choosing as they shift from active administration of financial assets to passive indexing. The key reasons mainly include better performance, lower management costs and in the case of the Slovak tax regime, also the possibility of income tax exemption after complying with specific conditions, which increases the net investment revenue for investors.
Stock-based products at the height of popularity
Assets have been flowing into global index products for 4 and a half years (or 54 months) consecutively, which further underlines their growing popularity among investors, including Slovaks. It is expected that in the following years, index products will gain an ever-increasing share of the pie representing the whole mutual-fund industry, while by year 2020, the volume of assets managed under index products may actually be doubled. At the moment, it is approximately one full third of the total mutual fund segment.
The number of global index products from 375 providers traded on 70 stock exchanges in 57 countries rose to a record-breaking 7487 by the end of this July. From the beginning of the year, $264 billion flew into global index products, with stock index products enjoying the most robust popularity, having posted a net inflow of financial assets amounting to $177.31 billion, thus accounting for almost 70% of the total.
The positive economic sentiment and bullish mood on the financial markets during July resulted in the largest monthly increase of funds in index products since January of the same year, when the financial markets broke the historical record. The largest volume of finance (over $6.5 billion) flew into the largest ETF with American stocks – the SPDR S&P 500 ETF. From the total offer of index products, iShares Physical Gold ETC, an index following the development in gold prices, enjoyed the largest investor demand. It registered new assets in an amount exceeding $725 million.
In the group of index products also called ETP (Exchange Traded Products), investors in Across can use the well-known ETF (Exchange Traded Funds), as well as ETC (Exchange Traded Commodities) and ETN (Exchange Traded Notes). A shared characteristic of all the above instruments (that is ETP) is – if abstracted from the fees – to deliver the same revenue as the underlying asset. For ETF, this is shares and bonds in most cases. ETC, on the other hand, may follow the development of e.g. crude oil, gold or a commodity basket. And ETN can be used as a vehicle to bet on, for example, increasing market volatility.