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Must-know: Analyzing the growing demand for ETFs in the US

Surbhi Jain

A must-know overview of ETF investments in the US (Part 5 of 6)

(Continued from Part 4)

Increased demand for ETFs

Exchange-traded funds (or ETFs) have gained popularity among both institutional and retail investors in the U.S. ETFs help institutional investors conveniently participate in—or hedge against—broad movements in the stock market.

Retail investors have also become more interested in this investment class because of the many advantages it offers you over other asset classes. We talked about these advantages in Part 2 of this series.

Broad-market ETFs like the SPDR S&P 500 ETF (SPY) and the iShares Core S&P 500 ETF (IVV) invest in large-cap U.S. companies like Apple, Inc. (AAPL), Exxon Mobil Corp. (XOM), and Microsoft Corp. (MSFT). In the universe of U.S. ETFs, these ETFs have the strongest asset base, of approximately $168 trillion and $57 trillion, respectively.

Net issuance is favorable for investors

Investor interest in ETFs has grown rapidly. Demand for ETFs reflects in the net issuance of ETF shares in a year. This demand has seen good improvement over the years. Net issuance is the total dollar amount of the shares an ETF sponsor issues and creates less the total dollar amount of the shares the ETF sponsor redeems.

The chart above shows you the net issuance over the last ten years. From year end 2003 through 2013, the ETF industry issued approximately $1,248 billion in net new shares. Investor demand for broad-based domestic equity ETFs accounted for 30% of this total.

Finding an ETF category that works for you

Read on to the next part of this series to see how recent demand trends differ among ETF categories.

Continue to Part 6

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