ETF (Exchange Traded Fund) volume continues to dominate trading in the U.S. and globally. While the bulk of ETF trading is focused on the U.S. markets, their dominance continues to spread throughout the globe. Volume daily is dominated by ETFs. In 2016, only one of the top 15-securities in terms of volume traded in the United States was a stock, while the others were all ETFs.
An exchange traded fund is an instrument that is geared to track a specific benchmark. This could be a stock sector, such as technology or utilities, or it can track a currency pair or commodity. The most liquid ETF in the United States tracks the movements of the S&P 500 index. The benefits of trading an ETF is that it is very liquid allowing you to purchase or sell the ETF at any time the market is open with relative easy. This compares to mutual funds that only let you sell your security at the close of the session.
Volume is Climbing
According to investment bank Credit Suisse Total ETF volume in 2016 rose 17% year over year. The attractiveness of a product that offers you easy access to nearly every sector, allowing investors to generate strategies that can be diversified or focused. Since there are also ETFs that cover bonds and corporate bonds, allowing you can generate a portfolio that meets your long term financial goals. For example, you can generate a diversified portfolio that is 60% stocks, 20% bonds and 20% alternative assets without the help of a financial advisor.
You can even break each allocation down, by purchasing sectors that are aggressive such as technology or discretionary, or sectors that are defensive such as staples or utilities. You can learn about multiple types of ETFS in the iForex review. You can purchase ETFs that hold government bonds, or ones that hold either high yield or investment grade corporate bonds. ETFs also provide access to commodities such as gold, silver and crude oil, which can allow you to generate an alternative asset allocation.
Another great benefit of trading ETFS is that their fees are generally much lower than stocks and they have the tax efficiencies that are more beneficial than mutual funds. While the accessibility of ETFs, the largest of which are index funds, has played into the growing trend of passive investing, the spike in volume indicates that traders are also using the funds as short-term holdings rather than core positions in their portfolios. This could be to hedge their other assets, or to speculate on the short-term direction of an ETF.
In 2016, ETFs accounted for 30% of all U.S. trading in terms of value, and 23% in terms of share volume, according to Credit Suisse. Their usage represents remarkably swift adoption of an asset class that was first launched in 1993. U.S. equity funds remain the most popular ETF category, however, other categories saw much faster growth over 2016. While volume for U.S. equity funds rose 19% in 2016, international equity funds grew 55% according to Credit Suisse.