It’s not just your imagination — ETFs are so hot right now.
ETFs, or exchange-traded funds, entered the scene over three decades ago but have gained more traction in recent years. The investment vehicle allows you to put multiple eggs into one basket, financially speaking, and the combination of diversification and low costs have made ETFs a hit.
One reason for the sudden spike in popularity is the passage of the “ETF Rule” by the SEC back in 2019, which streamlined the process for getting an ETF approved and facilitated “greater competition and innovation in the ETF marketplace, leading to more choice for investors.”
What followed was a veritable tsunami of ETFs. Some, like the SPDR S&P 500 ETF, the first ETF approved in the US way back in 1993, remain tried and true classics that simply mimic their index of choice.
On the other hand, some ETFs have a bit more flavor. A few of our favorites include:
- The Millennial Consumer ETF (ticker symbol: MILN), which focuses on investing in companies that cater to millennials, the best and most important demographic in the US.
- The Procure Space ETF (UFO) provides “diversification beyond the limitations of solely earthbound companies” by focusing on the commercialization of space — and with a ticker like that, how can you resist investing?
- The VanEck Social Sentiment ETF (BUZZ) uses AI to track and invest in the companies with the most positive social media buzz (oh, now I get the ticker symbol).
- The K-Pop and Korean Entertainment ETF (KPOP) invests in Korean entertainment companies — a niche sector, but anything that supports the BTS boys gets our money.
- As for the AdvisorShares Vice ETF (VICE), it’s good to be bad: the fund focuses on alcohol, tobacco, gambling, and fast food investments, because who doesn’t love some sin stocks.
Should I invest in ETFs?
All jokes aside, what ETFs really do is allow investors to further customize their portfolios to their liking. If you want to focus your investing efforts on a specific theme, demographic, geographical area, commodity, or even person, ETFs are there to help. And investors love them: according to Bloomberg, thematic ETF assets have risen 148% to about $231 billion since late 2019.
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Diversification is another key element behind the ETF boom. Having a basket of stocks, bonds, or commodities, rather than a single investment, allows investors to diversify their holdings, hedge their bets, and manage their risk all at once.
The cherry on top: the price is right. Most ETFs have lower fees than mutual funds, as well as lower operating expense ratios. And rather than pay the commision for buying and selling all the securities within an ETF, one single price tag is all you’ll be faced with.
You could argue that ETF innovation has gone too far. For instance, an increasingly popular way to bet on market moves is with single-stock ETFs, which utilize leverage to maximize gains.
But the combination of diversification, price, and the ability to invest in a theme of your choice make ETFs a very popular addition to most investors’ portfolios right now.