ETFs Winning Popularity Contests

Exchange traded funds (ETFs) cover basically all aspects of the market, and new ideas and innovations in the industry are continually coming out. So it comes to no surprise that the popularity of this investment tool is still growing.

The Deutsche Bank observed that ETFs are growing in popularity among pension funds and wealth managers, especially for ETFs that cover broad equity indices like the MSCI Europe or MSCI World Index, according to a recent story in the Financial Times.

Before the advent of ETFs, investors would only gain exposure to those markets by purchasing multiple futures contracts to gain access to the MSCI World Index. With ETFs, any retail investor may gain some exposure and with a lower tracking error. However, ETFs are a little more expensive on average than futures by 30 to 50 basis points.

Nevertheless, investors favor ETFs over futures since the costs of trading futures are relatively unknown until they are dished out and retail investors enjoy trading ETFs like stocks.

Since ETFs are not classified as derivative products, pension funds and other investors are more open to trading in this investment vehicle.