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Chart of the Week

Chart: The Rise of ETFs and Passive Investing

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Chart: The Rise of ETFs and Passive Investing

Rise of ETFs and Passive Investing

Passive investing is huge, but it’s barely made a dent on active

The Chart of the Week is a weekly Visual Capitalist feature on Fridays.

For the investing world, the meteoric rise of ETFs, or exchange-traded funds, has been a key story to follow since the 2008 crisis.

The ETF landscape has changed dramatically over that timeframe. In 2007, there were 1,181 ETFs that existed worldwide. By 2015, that number sailed to 4,396 – that’s a lot of new ETFs. Today, there is so much selection out there that you can do pretty much everything.

Want to go 2x short oil? Then try the ProShares UltraShort Bloomberg Crude Oil ETF (SCO). Want to buy into the cybersecurity boom? Try the PureFunds Cybersecurity ETF (HACK). Want to focus in on a specific geographic region such as Singapore? Don’t worry, the iShares MSCI Singapore ETF (EWS) gets you precise exposure to large and mid-sized Singaporean companies.

You get the idea.

Part of a Bigger Trend

Even though the global ETF market is estimated to be worth $7 trillion by 2021, the ETF craze is actually part of a much bigger trend towards putting money into passive funds.

Passive funds aim to “track” a specific market, by allocating dollars in equal proportion to an index. This is in contrast to active funds, which employ professional managers who try to beat the market by having more discretion in choosing which securities make up a portfolio.

The vast majority of ETFs fit in the former category, and passive investing has been on a roll since the Financial Crisis. In 2015, for example, $413.8 billion was poured into passive funds, while $207.3 billion was pulled out of U.S. mutual funds with active management.

Passive or Active?

Why have ETFs and passive investing been so popular? In general, it is because many active managers have struggled to beat the market as a whole in recent years.

However, there are some important caveats worth considering.

First, while most managers fail to beat the market, some of them do succeed. Financial planners will be the first to tell you that there are revered mutual funds out there that do often perform to the upside.

Next, passive funds have also profited off of the extreme and unprecedented actions taken by central banks. Since the crisis, central banks have experimented by pumping trillions of dollars of liquidity into the system, creating a very unusual market situation. With the cost of borrowing at record lows, valuations have become extremely distorted in the market. This careful balancing act by central banks benefits passive investors until it blows up.

Lastly, low volatility by definition means smaller price movements that active managers can capitalize on. If the volatility environment changes, passive funds may lose a level of attractiveness as there are more winners and losers at any given time.

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Chart of the Week

The Economies Adding the Most to Global Growth in 2019

Global economics is effectively a numbers game – here are the countries and regions projected to contribute the most to global growth in 2019.

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The Economies Adding the Most to Global Growth in 2019

Global economics is effectively a numbers game.

As long as the data adds up to economic expansion on a worldwide level, it’s easy to keep the status quo rolling. Companies can shift resources to the growing segments, and investors can put capital where it can go to work.

At the end of the day, growth cures everything – it’s only when it dries up that things get hairy.

Breaking Down Global Growth in 2019

Today’s chart uses data from Standard Chartered and the IMF to break down where economic growth is happening in 2019 using purchasing power parity (PPP) terms. Further, it also compares the share of the global GDP pie taken by key countries and regions over time.

Let’s start by looking at where global growth is forecasted to occur in 2019:

Country or RegionShare of Global GDP Growth (PPP) in 2019F
China33%
Other Asia (Excl. China/Japan)29%
United States11%
Middle East & North Africa4%
Euro Area4%
Latin America & Caribbean3%
Other Europe3%
Sub-Saharan Africa2%
Japan1%
United Kingdom1%
Canada1%
Rest of World8%

The data here mimics some of the previous estimates we’ve seen from Standard Chartered, such as this chart which projects the largest economies in 2030.

Asia as a whole will account for 63% of all global GDP growth (PPP) this year, with the lion’s share going to China. Countries like India and Indonesia will contribute to the “Other Asia” share, and Japan will only contribute 1% to the global growth total.

In terms of developed economies, the U.S. will lead the pack (11%) in contributing to global growth. Europe will add 8% between its various sub-regions, and Canada will add 1%.

Share of Global Economy Over Time

Based on the above projections, we were interested in taking a look at how each region or country’s share of global GDP (PPP) has changed over recent decades.

This time, we used IMF projections from its data mapper tool to loosely approximate the regions above, though there are some minor differences in how the data is organized.

Country or RegionShare of GDP (PPP, 1980)Share of GDP (PPP, 2019F)Change
Developing Asia8.9%34.1%+25.2 pp
European Union29.9%16.0%-13.9 pp
United States21.6%15.0%-6.6 pp
Latin America & Caribbean12.2%7.4%-4.8 pp
Middle East & North Africa8.6%6.5%-2.1 pp
Sub-Saharan Africa2.4%3.0%+0.6 pp

In the past 40 years or so, Developing Asia has increased its share of the global economy (in PPP terms) from 8.9% to an estimated 34.1% today. This dominant region includes China, India, and other fast-growing economies.

The European Union and the United States combined for 51.5% of global productivity in 1980, but they now account for 31% of the total economic mix. Similarly, the Latin America and MENA regions are seeing similar decreases in their share of the economic pie.

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Chart of the Week

Map: Cities With the Most Ultra-Rich Residents

What cities are the world’s ultra-rich flocking to? This map looks at ultra high net worth individual (UHNWI) growth rates in cities around the world.

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Mapped: The Cities With the Most Ultra-Rich Residents

As of 2018, there is a grand total of 198,342 ultra high net worth individuals (UHNWIs) globally with assets over US$30 million, according to the most recent edition of Knight Frank’s Wealth Report.

Although these millionaires and billionaires can be found all over the globe, the reality is that most of the world’s ultra-rich population tends to congregate in world-class cities.

Generally speaking, UHNWIs are looking to live in places that are conducive to safeguarding and growing their wealth, but that also give them access to top-end amenities that allow them to live comfortably and luxuriously.

Top 10 Cities for the Ultra-Rich

To start, we’ll look at a list of global cities, organized by expected number of UHNWIs in 2023:

RankCityUHNWIs (2018)UHNWIs (2023e)Change (%)
#1๐Ÿ‡ฌ๐Ÿ‡ง London4,9446,01521.7%
#2๐Ÿ‡ธ๐Ÿ‡ฌ Singapore3,5984,39322.1%
#3๐Ÿ‡ฏ๐Ÿ‡ต Tokyo3,7324,12510.5%
#4๐Ÿ‡บ๐Ÿ‡ธ New York City3,3783,89115.2%
#5๐Ÿ‡จ๐Ÿ‡ณ Beijing1,6732,24734.3%
#6๐Ÿ‡ซ๐Ÿ‡ท Paris1,6672,03121.8%
#7๐Ÿ‡ฐ๐Ÿ‡ท Seoul1,5942,02026.7%
#8๐Ÿ‡น๐Ÿ‡ผ Taipei1,5191,86422.7%
#9๐Ÿ‡จ๐Ÿ‡ญ Zurich1,5071,79619.2%
#10๐Ÿ‡จ๐Ÿ‡ณ Shanghai1,2631,69033.8%

London continues to top the list, with a roster of 4,944 ultra-rich residents today and the projected growth over the coming years to eclipse the 6,000 mark by 2023.

Tokyo has the second highest amount of UHNWIs today, but the city is adding them at a slower rate than other rival cities. As a result, Singapore will move into the #2 spot overall by 2023, with an expected total of 4,393 high net worth residents.

Finally, it’s worth noting that only two cities on the top 10 list are expected to see growth above a 30% clip over this five-year period. Shanghai and Beijing could be cities to watch for decades to come, as they add millionaires and billionaires at a faster rate than any of the other heavyweights.

Fastest Growing Cities

Where are the billionaire meccas of the future?

Here are the 10 cities that are expected to add UHNWIs the fastest between 2018-2023:

RankCityUHNWIs (2018)UHNWIs (2023e)Change (%)
#1๐Ÿ‡ฎ๐Ÿ‡ณ Mumbai7971,10138.1%
#2๐Ÿ‡ฎ๐Ÿ‡ณ Delhi21129137.9%
#3๐Ÿ‡ต๐Ÿ‡ญ Manila 11515736.5%
#4๐Ÿ‡จ๐Ÿ‡ณ Shenzhen52770834.3%
#5๐Ÿ‡จ๐Ÿ‡ณ Beijing1,6732,24734.3%
#6๐Ÿ‡จ๐Ÿ‡ณ Guangzhou39452934.3%
#7๐Ÿ‡จ๐Ÿ‡ณ Shanghai1,2631,69033.8%
#8๐Ÿ‡ฎ๐Ÿ‡ฉ Jakarta40152931.9%
#9๐Ÿ‡ฒ๐Ÿ‡พ Kuala Lumpur37649631.9%
#10๐Ÿ‡ฐ๐Ÿ‡ท Seoul1,5942,02026.7%

Not surprisingly, all 10 of these cities are located in Asia.

Two Indian cities (Delhi and Mumbai) top the list, and are likely to add nearly 40% to their ultra-rich populations over the next five years. China also has a strong showing here.

Interestingly, just missing the above top 10 were a few non-Asian cities: Auckland (#11), Madrid (#12), Munich (#13), and Nairobi (#14) are all expected to grow their UHNWI populations by roughly 25% by 2023.

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