Market Overview

Exchange Traded Funds Market has experienced rapid growth in recent years, establishing itself as the largest investment vehicle on a global scale. As of 2022, the total assets under management (AUM) in the global ETF market exceeded an impressive $10 trillion, with a CAGR of 10% from 2023-2033. This substantial AUM reflects the increasing popularity and widespread adoption of ETFs by investors seeking diversified and efficient investment options.

Below Figure Depicts The Growth Of Total Asset Managed Under Exchange Traded Funds Market From 2017-2022 (USD Trillion)

Source: We Market Research, Financial times and Wall Street Journal

Effect Of Inflation On Exchange Traded Funds Market

The influence of inflation on the exchange-traded fund (ETF) market is a nuanced one, producing a mix of effects. On the one hand, inflation can erode the value of ETF investments, diminishing the purchasing power of money. Conversely, inflation can also fuel the performance of select ETFs, particularly those that track commodity prices or real estate.

In assessing the overall impact of inflation on the ETF market, numerous factors come into play, including the specific ETFs in an investor's portfolio, the asset classes these ETFs are linked to, and the broader economic context.

Let's Delve Into How Inflation Can Affect Different Types Of Exchange Traded Funds Market In Greater Detail:

1. Equity ETFs: Inflation can exert a negative influence on equity ETFs. This is because inflation often translates into higher operational costs for businesses, which can lead to reduced profitability. In turn, this downward pressure on corporate earnings can result in lower stock prices, subsequently diminishing the returns of equity ETFs.

2. Bond ETFs: Inflation can also adversely affect bond ETFs. The erosion of the value of fixed-income investments is a common consequence of rising inflation. Bond prices typically exhibit a decline when inflation is on the ascent, driven by investor demands for higher yields to offset the diminishing purchasing power of money.

3. Commodity ETFs: Certain ETFs that track commodities may benefit from inflation. This is primarily due to the fact that inflation frequently propels commodity prices upward. Investors often turn to commodities as a hedge against inflation, given their historical tendency to appreciate in value during such periods.

4. Real Estate ETFs: Real estate ETFs can also experience advantages from inflation. Inflation often leads to an increase in property values, given the tangible nature of real estate as an asset that appreciates over time.

It's essential to acknowledge that the influence of inflation on ETFs is highly contingent on the specific ETF in question and the underlying assets it is tied to. For instance, different equity ETFs may be subject to varying degrees of exposure to inflation, contingent on the sectors and industries they are invested in.

In light of these multifaceted dynamics, investors should diligently evaluate how inflation might impact their exchange traded funds market portfolios before making investment decisions.

Market Scope

Market Dynamics

One of the pivotal drivers catalyzing the remarkable growth of the Exchange Traded Funds market is the increasing emphasis on passive investing. Passive investing, typified by index-tracking strategies, has gained considerable momentum and popularity in recent years. This approach allows investors to gain exposure to entire markets or specific segments with a simple and cost-effective investment vehicle, namely ETFs.

Passive investing is driven by the belief that, over the long term, market indices tend to perform well, and it's often challenging for actively managed funds to consistently outperform these benchmarks. As a result, investors are drawn to ETFs, which provide a straightforward way to replicate index performance. This approach not only offers diversification across a broad array of assets but also comes with lower fees compared to traditional actively managed mutual funds.

Below Pointers Depicts Key Statistics Regarding Passive Investors That Has Formed A Suitable Base For Exchange Traded Funds Market:

·         In the United States, the proportion of households that have embraced passive investments has surged from 42% in 2016 to 58% in 2022.

·         The share of assets invested in passive funds in the United States has risen from 34% in 2016 to 46% in 2022.

·         The global assets under management (AUM) in the Exchange-Traded Fund (ETF) market has expanded from USD 3.3 trillion in 2017 to reach USD 10.3 trillion in AUM by 2022.

·         The global assets under management (AUM) in the mutual fund market has grown from USD 40.5 trillion in 2017 to USD 41.6 trillion in AUM by 2022.

The advantages of passive investing have resonated with a wide spectrum of investors, from individual retail investors to institutional asset managers. Its simplicity, transparency, and cost-efficiency make it particularly attractive. Many investors have recognized that by deploying passive strategies through ETFs, they can align their investment portfolios with specific market indices, asset classes, or sectors. Moreover, the transparency of ETFs, which disclose their holdings on a daily basis, empowers investors to make informed decisions and understand precisely what is held within their investments.

As a result of this growing focus on passive investing, the ETF market has flourished, with a vast array of index-tracking ETFs available to meet diverse investment objectives. This shift towards passive strategies has contributed significantly to the ascent of ETFs as the investment vehicle of choice for many, reshaping the investment landscape by offering a compelling combination of simplicity, diversification, and cost-effectiveness, thereby boosting the growth of exchange traded funds market.

Market Analysis By Asset Class

Based on asset class, the exchange traded funds market is segmented into Equity ETFs, Fixed-Income ETFs, Commodity ETFs, Currency ETFs, Real Estate ETFs, Hybrid ETFs (Combining multiple asset classes). Equity based exchanged traded funds dominate the market with an active share of 70% in 2022. Equity-based Exchange-Traded Funds (ETFs) have established a dominant position in the ETF market for several compelling reasons.

Firstly, they offer investors exposure to the stock market, which has historically been a significant driver of wealth creation and capital appreciation. Equity ETFs provide a straightforward means for investors to participate in the growth potential of individual stocks, sectors, or broad market indices. This appeal to the potential for high returns in the equity market has consistently drawn investors towards these funds.

Secondly, equity-based ETFs align well with the prevailing trend of passive investing. Many investors, both institutional and retail, have gravitated towards passive investment strategies, which focus on replicating market benchmarks or specific indices. Equity ETFs provide an efficient way to achieve this objective, allowing investors to mirror the performance of an underlying index without the need for individual stock selection.

Below Figure Depicts The Key Perception About Equity Based Class In Exchange Traded Funds Market

Source: We Market Research, Sample Size: n=200

Additionally, the transparency and ease of trading associated with equity ETFs make them particularly attractive. Investors can easily access real-time pricing information and, as they are traded on stock exchanges, buy and sell shares throughout the trading day. This liquidity and accessibility have made equity ETFs highly convenient for investors.

Furthermore, equity-based ETFs are diverse, offering a wide range of options that cater to various investment preferences. They encompass ETFs that track specific sectors, industries, market capitalizations, and geographies, allowing investors to tailor their portfolios according to their objectives and risk tolerance, thus providing a major up-hand within the exchange traded funds market.

Market Analysis By Sector

Based on sector, exchange traded funds market is studied across Technology ETFs, Healthcare ETFs, Financial ETFs, Energy ETFs, Consumer Discretionary ETFs. Technology sector dominates the market with an active share of 15.1% in 2022, One prominent trend is the proliferation of tech-themed ETFs, designed to capture the growth and innovation within the technology sector. These ETFs focus on specific themes, such as artificial intelligence, cloud computing, cybersecurity, or semiconductors, allowing investors to target areas of the tech industry with high growth potential.

The accelerated shift towards e-commerce and digital transformation, fueled by the COVID-19 pandemic, has led to the emergence of ETFs tailored to this trend. These ETFs encompass companies involved in online retail, digital payment systems, and software solutions, reflecting the increased reliance on digital technologies. Environmental, Social, and Governance (ESG) considerations have made their mark on the tech sector. ESG-focused tech ETFs include companies that prioritize sustainability, ethical practices, and social responsibility in their operations.

The technology sector's rapid evolution and innovation have contributed to the diversification and specialization of tech-themed ETFs. These trends offer investors a wide range of options to align their investments with specific themes, industries, or global tech market dynamics, reflecting the dynamic nature of the tech sector within the broader exchange traded funds market.

Market Analysis By Region

Based on regional scope, the exchange traded funds market is studied across North America, Europe, Asia Pacific, South America and MEA. Asia Pacific holds a share of around 18.15% in the market and is set to create a revolution within the market. Asia Pacific has witnessed a notable expansion of its ETF market in recent years. As investors seek efficient, transparent, and diversified investment options, ETFs have gained popularity across the region. This growth is evident in both the number of ETF offerings and assets under management (AUM).

Asia Pacific investors have increasingly embraced passive investing and index-tracking strategies. ETFs are well-suited to these approaches, providing cost-efficient access to market indices and benchmarks.

Below Figure Depicts The Growth In Number Of Passive Investors In Asia Pacific From 2017 To 2021

Source: We Market Research

From the above figure it is clearly evident that passive investors are on the linear path within Asia Pacific, which has set to create a lucrative scope for the overall exchange traded funds market.

Both institutional investors and retail investors have embraced ETFs in Asia Pacific. Institutional investors, including pension funds and asset managers, have incorporated ETFs into their investment strategies. Retail investors have also turned to ETFs for diversified, low-cost investment options. Asia Pacific has witnessed innovation in the ETF space, with the introduction of thematic ETFs that cater to regional preferences and trends. These ETFs focus on themes such as technology, ESG (Environmental, Social, Governance), and healthcare, aligning with evolving investor interests.

Competitive Landscape

Some of the major companies operating within the exchange traded funds market are BlackRock, State Street Global Advisors (SSgA), Vanguard, Invesco, Charles Schwab, iShares, WisdomTree, American Century Investments, BMO Global Asset Management, Fidelity Investments, Nuveen, USAA and others..

Below Figure Depicts The Top Companies Market Share

Source: We Market Research

Market Segmentation

By Asset Class

·         Equity ETFs

·         Fixed-Income ETFs

·         Commodity ETFs

·         Currency ETFs

·         Real Estate ETFs

·         Hybrid ETFs (Combining multiple asset classes)

By Sector

·         Technology ETFs

·         Healthcare ETFs

·         Financial ETFs

·         Energy ETFs

·         Consumer Discretionary ETFs

By Bond Type

·         Government Bond ETFs

·         Corporate Bond ETFs

·         Municipal Bond ETFs

·         High-Yield Bond ETFs (junk bonds)

By Investment Style

·         Passive ETFs (tracking an index)

·         Active ETFs (managed by a portfolio manager)

·         Smart Beta ETFs (utilizing alternative index strategies)