iShares BrandVoice: Invest For Progress: 5 Reasons Why ETFs Are Booming (2024)
By Suchi Rudra
In 2020 alone, more than 10 million Americans opened brokerage accounts,1 and demand for exchange-traded funds (ETFs) has risen as a result—more than 140 new ETFs have already launched in 2021.2
“This record growth is driven by a number of factors, from commission-free trading to Covid-19 dynamics to the mainstream adoption of digital platforms,” says Armando Senra, head of iShares Americas. “In the U.S., we estimate that around 22 million people now own iShares ETFs.”3
Why ETFs? Because they offer investors a low-cost way to pursue their financial goals. Most ETFs seek to track the returns of an underlying index, like the S&P 500, which ultimately gives investors easy access to diversified markets, all without having to research and pick from among thousands of individual stocks and bonds.
“ETFs provide a tremendous amount of access and value, allowing anyone to invest alongside some of the most sophisticated investors in the world in the same way, with the same capabilities and at the same costs,” says Senra.
While ETFs were developed in the 1990s and indexing as an investment strategy has been around even longer, this investment product has been garnering a lot of attention lately.
SOURCES:
1. The Wall Street Journal, “New Army Of Individual Investors Flexes Its Muscle,” December 2020.
2. Nasdaq, “Inside The Growing Popularity Of ETFs,” June 2021.
3. Broadridge, BlackRock estimate (as of November 2020). Calculation based on the total number of households that own an iShares ETF and assuming each household has 1.3 accounts. Not counting index mutual funds.
4. Morningstar as of 6/30/2021. The three iShares Core ETFs with a 20-year track record (IVV, IJH and IJR) have outperformed 69%, 88% and 93% of funds in their categories over the last 20 years, respectively. IVV is in the large blend category and is compared against 740 funds over this time period, IJH is in the mid-cap blend category and is compared against 160 funds over this time period, and IJR is in the small blend category and is compared against 327 funds over this time period.
5. S&P Global Market Intelligence, “ESG Funds Beat Out S&P 500 In 1st Year Of COVID-19; How 1 Fund Shot To The Top,” April 2021. Period of measurement is 3/5/20-3/5/21. Analysis included 26 U.S ESG equity ETFs and mutual funds with over $250 million in AUM, 19 of which outperformed the S&P 500. Past performance is not indicative of future results.
6. Bloomberg as of 6/30/2021.
IMPORTANT INFORMATION:
Carefully consider the Funds’ investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds’ prospectuses or, if available, the summary prospectuses, which may be obtained by visiting www.iShares.com or www.blackrock.com. Read the prospectus carefully before investing.
Investing involves risk, including possible loss of principal.
A fund’s environmental, social and governance (“ESG”) investment strategy limits the types and number of investment opportunities available to the fund and, as a result, the fund may underperform other funds that do not have an ESG focus. A fund’s ESG investment strategy may result in the fund investing in securities or industry sectors that underperform the market as a whole or underperform other funds screened for ESG standards. In addition, companies selected by the index provider may not exhibit positive or favorable ESG characteristics.
When comparing stocks or bonds and ETFs, it should be remembered that management fees associated with fund investments are not borne by investors in individual stocks or bonds. Buying and selling shares of ETFs may result in brokerage commissions. Diversification and asset allocation may not protect against market risk or loss of principal.
Funds that concentrate investments in specific industries, sectors, markets or asset classes may underperform or be more volatile than other industries, sectors, markets or asset classes and the general securities market.
The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.
The information presented does not take into consideration commissions, tax implications, or other transaction costs, which may significantly affect the economic consequences of a given strategy or investment decision.
This material contains general information only and does not take into account an individual’s financial circ*mstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circ*mstances and consideration should be given to talking to a financial advisor before making an investment decision.
Prepared by BlackRock Investments, LLC, member FINRA.
iSHARES and BLACKROCK are trademarks of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other marks are the property of their respective owners.
From their ability to democratize investing access to their liquidity and unique in-kind structure, ETFs offer investors a diverse set of benefits not found in other investment vehicles.
IShares U.S. Technology ETF holds a Zacks ETF Rank of 1 (Strong Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, IYW is a great option for investors seeking exposure to the Technology ETFs segment of the market.
Are ETFs still a good investment? ETFs can be very good investments. Many ETFs enable you to invest passively in a broader stock market index at a low cost, allowing you to earn market returns. Other ETFs are great options for those seeking passive income from dividend stocks or bonds.
In addition to intraday trading, ETFs are increasingly attractive to investors because they are: Transparent: Holdings of an ETF are disclosed in real time, which allows investors to make more educated decisions about their potential performance. Many mutual funds only disclose holdings on a monthly or quarterly basis.
Most ETFs have lower fees than mutual funds, as well as lower operating expense ratios. And rather than pay the commision for buying and selling all the securities within an ETF, one single price tag is all you'll be faced with.
The Vanguard fund has a lower price-to-earnings ratio, at 17.4 times, compared with 18.3 for iShares. This is due to the lower weighting to the highly rated US market. Fees are comparable, with iShares costing 0.2% and Vanguard costing 0.22%.
Yes, an inverse ETF can reach zero, particularly over long periods. Market volatility, compounding effects, and fund management concerns can exacerbate losses. To successfully manage possible risks, investors should be aware of the short-term nature of these securities and carefully monitor their holdings.
The single biggest risk in ETFs is market risk. Like a mutual fund or a closed-end fund, ETFs are only an investment vehicle—a wrapper for their underlying investment. So if you buy an S&P 500 ETF and the S&P 500 goes down 50%, nothing about how cheap, tax efficient, or transparent an ETF is will help you.
Types of ETFs that can perform relatively well during periods of high inflation include TIPS ETFs, commodity ETFs, U.S. dollar ETFs and precious metals ETFs.
The price of an ETF may deviate from the NAV of the ETF due to changes in the supply or demand for an ETF at any single point in time. The market price will typically exceed the NAV if the fund is in high demand with low supply.
There is a lesser chance of ETF share prices being higher or lower than those of underlying shares. ETFs trade throughout the day at a price close to the price of the underlying securities, so if the price is significantly higher or lower than the net asset value, arbitrage will bring the price back in line.
Global ETF AuM is expected to exceed $19.2 trillion by June 2028. This would represent a five-year CAGR of 13.5%, more than double the anticipated 5% CAGR for the AWM industry as a whole in the five years up to 2027.
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