$50 trillion! Will the Global ETF market hit this milestone by 2030?

By Patricia Miller


The popularity of exchange-traded funds (ETFs) and exchange-traded products (ETPs) appears to be infectious, as their rapid growth in recent years is incredible.

The popularity of exchange-traded funds (ETFs) and exchange-traded products (ETPs) appears to be infectious, as their rapid growth in recent years is incredible. Inflows into ETF funds breached the $7 trillion milestone in August. These investments give buyers the chance to own a selection of distinct assets across a spectrum of markets. Within an ETF you could own a basket of commodities, currencies and equities, helping to hedge against risk. Prior to the 2008/09 financial crisis, very few investors were interested in ETFs, but their relative safety and low cost have increased their popularity in the ensuing years.

Record ETF inflows!

Consumers want their investments to grow, but in an uncertain economy with low interest rates this is hard. And in just ten years, assets in ETFs have grown from $770 billion to surpass $7 trillion! Some notable investors believe this is unsustainable and the bubble will surely burst. Yet, another school of thought is that it can only keep growing. A year ago, the Bank of America released a note stating the ETF market will hit $50 trillion in assets by 2030. Considering the rapid increase, we’ve seen this year, it’s not out of the question.

When it comes to investing, retail investors love a passive model. ETFs also offer tax efficiency; they incur lower fees than employing a fund manager and are cheaper than straight out equity investing. Buying ETFs also makes it far easier to tailor your portfolio to meet your personal needs or beliefs.

In November 2020, investors spent around $81.8 billion buying into equity ETFs. This pushed total ETF flows to $91.4 billion, far and away beating the prior monthly record of $63.4 billion set in June 2019. This month saw global stock markets rise 12.6%, making it the best month for global stock markets in more than 20 years! November’s record-breaking amount puts the 11-month total to $440.4 billion. Considering the success of ETFs year-to-date, 2020 is likely to be an unparalleled year for inflows.

Leveraged ETFs

A lesser known investment type is leveraging ETFs, but it too has ramped up activity this year and is proving ever more popular. Like any leveraged product it correlates the risk and reward, meaning investors can achieve great gains, but they can also suffer significant losses. This makes it a sensational star or a ticking time bomb.

Investors have poured $16.3 billion into leveraged and inverse ETFs from January to October this year. These leveraged funds utilise the power of leveraged money (debt) to make two or three times as much as ordinary ETFs on a daily basis. While inverse ETFs let investors profit off the opposite of an index move by betting against it.

The global volatility in stock markets has been caused by economic uncertainty. And huge stimulus packages from governments in multiple nations have given added support, resulting in a bull-run on US equities. The S&P 500 is up almost 13% year-to-date, while the Nasdaq is up nearly 36%.

Which ETFs are best?

There are many thousands of different ETFs to choose from, but two standard funds are growth and value. Growth funds contain stocks that are likely to explode and bring quick returns. Whereas value funds contain cheap stocks that are thought to be undervalued. Value funds usually offer a consistent return, whereas growth funds can be volatile but may produce higher returns overall. Growth stocks have done very well this year, particularly in technology.

Top US tech equities Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon.com (NASDAQ:AMZN), Facebook (NASDAQ:FB), and Alphabet (NASDAQ:GOOG)) have all performed exceptionally well this year.

According to Morningstar’s data, US stocks are now above fair value and November was a ground-breaking month for US small caps after a depressed few months. Value stocks also did well in the November rally. The Morningstar U.S. Value Index rose 14.4%, while the Morningstar U.S. Growth Index was up 10.6%.

Gold ETFs help determine the gold price

In the first eight months of 2020 investors spent over $51 billion on gold ETFs. According to the World Gold Council, this pushed their asset value to $241 billion. And in doing so, it helped boost the price of gold, pushing it over the coveted $2,000 milestone in August. If ETF investors move out of gold ETFs in 2021 then that could push the price of gold lower. It will depend on how quickly the global economy recovers from the pandemic and how confident investors are in the world order.

Energy ETFs trading at a deep discount

Nine out of ten ETFs trading at the biggest discounts are energy funds. That’s no surprise considering the year the oil price and sector has had. The Covid-19 crisis has destroyed demand for oil, but supplies are still growing, meaning there’s too many sellers and not enough buyers. This is likely to change once world travel resumes, but many analysts believe oil demand has already peaked and we’re unlikely to return to past glory. Nevertheless, these Energy ETFs could be a good buy for patient investors willing to wait it out, because eventually supplies will diminish and the price of oil will rise once again.

However, clean energy has done particularly well this year. This shouldn’t come as a surprise considering the global push to meet zero carbon targets and reduce pollution.

Two of these clean energy ETFs that have surged this year are VanEck Vectors Low Carbon Energy ETF (SMOG) and iShares Global Clean Energy ETF (ICLN). The first is up 94.6% and the second 102% for the first 11 months of the year. Both are now trading at a considerable premium to their fair value. They continued to do well in November’s rally confirming their popularity amid a green revolution. US president-elect Joe Biden is expected to press ahead with green energy policies and mandates that will further boost the sector.

How will ETFs perform in 2021?

ETFs can be a great way for people new to investing to get started. It’s relatively straightforward, hands-off and low cost. This explains its growing popularity in an increasingly busy world. But it’s still important to do your homework and choose your ETF investments wisely particularly if considering leveraged ETFs.

How 2021 will play out remains to be seen but the clean energy sector is likely to remain dominant as will pharmaceuticals and fintech. If the gold and oil or other commodity prices rise then these areas could see a surge in uptake too. Cryptocurrency has had a sensational year and crypto ETPs are popping up and expected to grow in prominence in the coming years. Emerging markets are also increasing in popularity, as many investors see places like China making a much faster economic recovery than Western countries.

With the inflow into ETFs and ETPs steadily rising year on year for the past two decades or more, it’s highly likely this won’t slow down. Retail investors are increasing in number and these products offer a simple way to get invested without any hassle. With that in mind, $50 trillion worth of assets in ETFs by 2030 seems perfectly plausible.


This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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