The growth in AuM of exchange traded funds (ETFs) continues to reach new records. Global ETF assets reached USD ten trillion at the end of 2023.¹
On the European market, the number of ETFs reached 2,074 with AuM of USD 1515 billion at the end of September 2023.²
Institutional and retail investors alike appreciate the main features of ETFs. Since ETFs are listed on stock exchanges, their shares or units can be traded in the same way as any other listed transferable security. They thus combine the advantages of both stocks and investment funds:
- Diversification: by buying an ETF, an investor can access in a single transaction a large variety of markets, sectors, regions, asset classes and investment styles;
- Liquidity: while traditional investment funds can only be traded at the end of the trading day, ETFs offer “intra-day” tradability at current market prices, if necessary provided by authorised market-making firms;
- Transparency: through their listing at stock exchanges and continuous tradability, ETFs offer an efficient and transparent pricing and an easy monitoring of their daily performance;
- Low costs: total expense ratios of ETFs tracking indices usually are low.
With the growing investor interest, innovation in ETFs has accelerated. While initially ETFs used to be passive investments that simply mirrored or replicated an index representing a particular stock market or sector, new “actively managed ETFs” striving to outperform a benchmark have emerged in recent years.
The methods used by ETFs to track an index are diverse as well, ranging from physical replication by directly investing in some or all of the components of the relevant index to “synthetic replication” through over-the-counter index swap transactions with a counterparty.
Luxembourg is the second-largest centre for ETFs in Europe with some EUR 163 billion AuM.³
AuM by Luxembourg ETFs have almost doubled over the past two years. Thanks to its unequalled expertise in cross-border fund distribution, Luxembourg is especially successful in attracting ETFs sold on an international basis.
