European investors lose their fear of exchange-traded funds or ETFs and are increasingly betting on these vehicles, which were born in the United States, where they are a success.
In October, European funds and ETFs posted good capital inflows, reflected in strong net growth in new assets in both equity funds (up € 18.9 billion) and fixed income funds ( amounting to 20.1 billion euros), according to Lyxor data. Together, ETFs and fixed income funds raised net asset flows of € 20.1 billion, of which € 18.3 billion were accrued by open-ended funds and € 1,800 by ETFs.
For ETFs and equity funds, they revealed net asset flows of € 18.9 billion: the funds received € 16.2 billion and ETFs reaped € 2.7 billion. Flows went mainly to global (general and sector), US and emerging market equities, particularly China.
What is an ETF
The ETF or exchange-traded fund ( ETF for its acronym in English), are vehicles that are traded in the secondary market and that are weighted to an index .
In other words, the investor does not buy shares of an index, but buys the weighting of those securities that make up the index. What does this mean? The ETF referenced to an index will have the same behavior as the index, that is, if it goes up, the ETF will go up and if it goes down, it will also fall.
Currently, there are ETFs for each world index, which allows the investor to diversify, since they can acquire equity indices from different regions and fixed income indices, also of different classes.
For example, Wisdom Tree just launched an ETC (instead of fund, referenced to commodities) on low-cost, physically backed gold. The WisdomTree Core Physical Gold ETP (WGLD), will allow investors to access the gold market in a simple way.
What are the advantages of ETFs?
The first one is accessibility. As the National Securities Market Commission (CNMV) recalls, the entry barrier is very low, which allows ETFs to invest without the need to mobilize large investments. Another is liquidity. ETFs, when sold on the secondary market, can be traded on the spot.
The third would be diversification , as we mentioned before, since it allows us to be invested in the entire basket that makes up the index, and not just in a specific sector if we buy shares. Finally, the commissions. Investing in ETFs has lower fees than mutual funds, below 1%. For example, in the case of the ETC on gold, the commission is only 0.15%.
In this sense, Víctor Alvargonzález, partner and founder of Nextep Finance, specialists in advice on ETFs, emphasizes that the commission can be up to “70% lower than that of a traditional fund.”
Also, explains Alvargonzález, it allows centering the shot by being able to create a basket of values. “In addition, for the conservative investor you can also create baskets of conservative ETFs with a return of 0.50% or up to 1%, which would be a success.”