Experts Call ETFs A 'Huge Growth Engine' In Fund Universe: 'It's Just An Easier Way To Invest'

The investment sector is witnessing a significant surge in the popularity of Exchange-Traded Funds (ETFs) owing to their unique benefits, say industry experts.

What Happened: ETFs are proving to be a crucial growth driver in the fund universe, according to Bryan Armour, Director of Passive Strategies Research for North America at Morningstar, and Todd Rosenbluth, Head of Research at VettaFi. Talking to CNBC, the experts weighed on the potential benefits once approved.

ETFs, first introduced in the 1990s, are attracting more active managers, facilitating the creation of a broader array of products and strategies. These funds, with their exceptional properties, hold an advantage over mutual funds.

“Our research has shown over the years that cost is one of the best predictors of future success,” Armour explained.

“And ETFs are a lot cheaper than mutual funds.”

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ETFs, unlike mutual fund orders that are executed once daily, can be traded throughout the day. Describing ETFs as a combination of mutual funds and stocks, Rosenbluth said they offer the “best of both worlds.”

"You get the benefits of trading on an exchange; you get the benefits of diversification. It's just an easier way to invest," Rosenbluth said.

However, ETFs are not without their drawbacks. They may involve a flat commission fee for trading, and although they are more tax-efficient than mutual funds, investors will still need to pay taxes on their individual capital gains.

Despite these issues, ETFs offer a more effective way to tap into various market asset classes, including stocks and bonds. Rosenbluth noted that ETFs provide the benefits of trading on an exchange and diversification, simplifying investment.

Why It Matters: The rise in ETFs comes at a time when the crypto industry is eagerly awaiting the approval of cryptocurrency-related ETFs despite the SEC deferring its verdict on two significant cryptocurrency-related ETF applications in mid-November. This includes proposals by Hashdex to convert its Bitcoin BTC/USD futures ETF into a spot Bitcoin ETF and Grayscale‘s plan to initiate a new Ether ETH/USD futures ETF.

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