ETF, A Rising Star In The Investment Universe

ETFs are gaining ground globally

Exchange-traded funds (ETFs) have solidified their position as one of the successful financial innovations of recent years, having become a strong alternative to mutual funds and other financial products. Since its inception in 1993, the ETF market has grown significantly, reaching USD 3.2 trillion in assets worldwide in August 2016.1 The European ETF industry represents USD 533 billion2 in assets and has tripled over the last 10 years.

Based on client demand for low-cost products, the ETF market will continue to grow rapidly, perhaps doubling in size within the next eight years. Additionally, it is likely to experience tremendous innovation for years to come, with new asset classes, new investment styles, and new international investment opportunities.

Actively managed ETFs represent the next generation of innovation. With such ETFs, rather than simply replicating a particular index, managers may continually change the underlying index, like an actively managed mutual fund. What's more, investors have a large variety of choice when purchasing ETFs.

The quickly growing robo-advisory business is increasingly using ETFs to offer simple and low-cost investment solutions to clients. By utilising ETFs, robo-advisors can automate the investment process as much as possible for a very low cost (estimated from a 0.25% to a 0.3% annual fee). With this business model, a new client signs up online and answers a series of questions to assess his or her investing style; the robo-advisor then plugs the answers into an algorithm that constructs a portfolio of ETFs based on the client's needs, after which the money is automatically transferred from the client's bank account to his or her investment account.

ETFs in Luxembourg

Luxembourg, as Europe's number one fund domicile, has got the platform for cross-border fund distribution, a highly experienced regulatory authority, an efficient tax environment, a multilingual and international workforce and a unique concentration of specialised service providers. Luxembourg UCITS are distributed in more than 70 countries around the world, across Latin America, the Middle East and Asia in addition to Europe and North America. They are highly regarded.3

To strengthen its position as one of the world's most attractive investment fund centres, it is key for Luxembourg to increase its reputation and market share in the growing ETF business and get rid of common misperceptions.

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