ETFs are generally Index Funds that are traded on exchanges, like stocks. It will not be wrong to say that with the invention of ETFs, the investment opportunities have increased both for retail and institutional money managers. Exchange Traded Funds essentially allow the investors to be exposed to stock markets in different countries, both in real-time and with a cost advantage.
ETFs are by and large Index Funds that are exchanged on the trading exchanges, much like a stock exchange. The ETFs have promoted an increase in investing opportunities. As it is a new concept, it might take some time to educate masses to invest in this scheme, but the returns are more definite with this one!
If you are to believe the Wall Street patrons, they are of the opinion that management can only be into the 21st century with the multifactor ETFs. The concept is viable, thanks to the diversification in money management. With pioneers like Cliff Asness and David Booth believing in diversifying investment being the governing principle of money management, their success proves the multifactor ETF concept viable.
If you believe the head of ETFs at Franklin Templeton, he is of the opinion that ETFs are creating core exposures and are not just simply trading vehicles. The only challenge is to get the education across to the masses! Having all the advantages, the concern in the ETF space is probably in their packaging. There is a concern whether individuals will be able to resist the temptation and act on their own when the markets are seeing ups and downs.
On the positive, this year has seen an increase in the multifactor smart beta ETFs. The returns of JP Morgan U.S. product has seen a 9.7% increase in 2016. Furthermore, Goldman’s multifactor U.S. saw a 4.7% return!
When you go to look at the track record of the ETFs, not a lot of years have gone by. It has just been 3 years. Therefore, a lot of the track is developed on historical index data. It is difficult to wait for 7 years to develop a record. Many even argue that a historical data comparison is only fancy on paper and when the ETF hits the retail.
Yet, Wall Street is accepting the multifactor ETFs with an open arm. In fact, 57% of institutional investors are investing in multifactor ETFs and this will only increase in the years to come by. The most popular ETFs are from Goldman Sachs. In fact, Goldman Sachs has seen a shift of its investors shifting to multifactor ETFs.