Exchange-traded funds, better known as ETFs, have been on the rise since they were launched in the United States in 1993. For Argentine investors they represent an opportunity in times of volatility and uncertainty.
ETFs bring together different assets such as stocks, bonds and commodities in the same instrument, providing greater diversification than the purchase of individual stocks.
At the end of 2020, during the pandemic, ETF assets were just under $5.5 trillion (that’s $5.5 trillion). In 2021, this number rose to USD 7.1 trillion, according to a report by SS&C Technologies.
Currently, the total value of assets managed by ETFs reaches approximately USD 11.5 trillion and in June 2028 it could reach USD 19.2 trillion, according to PwC estimates.
“If you saved $1 million every hour of every day, it would take you almost 500 years to reach $4.3 trillion. ETFs got there in just 25 years,” they noted from JP Morgan.
On the other hand, “investors have been rejecting mutual funds in favor of ETFs at a record pace. In 2022, there was a gap of USD 1.5 trillion in the flow of money from traditional investment vehicles to ETFs. Retail investors seem to gravitate towards them due to their marketability and more tax-friendly structure. “Institutional investors find ETFs to be a more convenient vehicle to participate in, or hedge against, broad movements in the stock market,” the SS&C report stated.
In this regard, Morningstar stated: “In many ways, ETFs are an evolution of mutual funds. ETFs differ in that they trade throughout the day on stock exchanges and are sometimes more tax efficient, transparent and accessible. ETF fees also tend to be cheaper than their predecessors, mutual funds.”
In Argentina, ETFs can be accessed through Cedears, both in pesos and dollars.
From Adcap Finance, Santiago Ruiz Guiñazu, Head of Equity Sales & Trading, pointed out that this year investors took ETFs less into account due to the enthusiasm there was with Argentina and the exchange rate stability until May. However, he assured that the market in the United States remains solid: the Nasdaq represented by the QQQ ETF had a return of 12% and the S&P or “SPY” 11%, both in dollars.
For its part, Paulino Seoane, Head Investment Ideas in Balanz, explained: “ETFs and all Cedears are being revived as an investment instrument due to the recent rise in the CCL and the uncertainty of the local market, in addition to the fact that the rate in pesos is no longer so attractive.”
Along similar lines, the economist Gustavo Ber said: “In the current context of political uncertainty and economic challenges, as well as greater volatility in domestic assets, some investors may want to reduce their local exposure and therefore increase their international exposure in order to achieve greater diversification. If so, they should evaluate the ETFs listed as Cedears, among which are those on traditional indices (SPY, DIA, QQQ, IWM) and others that allow sectoral exposures (XLF, XLE), regional (EWZ, EEM) and even one of innovation (ARKK)”.
Regarding the advantages, Seoane said: “ETFs are an excellent instrument for the non-professional investor since it allows them to access a general or specific index of a sector of the economy or market without having to worry or follow each of the actions that compose it.” In addition to the possibility of diversification, “they have a high level of liquidity, since the high traded volumes allow rapid entry and exit of investors,” said the specialist, who added that there are three ways to obtain profitability through investment. in Cedears of ETFs:
- Through dividends collected in Cedear dollars from ETF
- It may happen that the price of the ETF does not vary in the US, but if the Cedear ETF was purchased in pesos and the dollar rose in Argentina, the Cedear ETF will be worth more than at the time of purchase, obtaining a return in pesos
- Capital gain due to the rise in the price of the ETF in the US
