Markets

Chart: The Rise of ETFs and Passive Investing

Published

6 years ago

September 23, 2016

Jeff Desjardins

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.

Related Topics:investing etfs mutual funds passive active

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Markets

Charted: Tesla’s Unrivaled Profit Margins

This infographic compares Tesla’s impressive profit margins to various Western and Chinese competitors.

Published

15 hours ago

February 3, 2023

Marcus Lu

Chart: Tesla’s Unrivaled Profit Margins

In January this year, Tesla made the surprising announcement that it would be cutting prices on its vehicles by as much as 20%.

While price cuts are not new in the automotive world, they are for Tesla. The company, which historically has been unable to keep up with demand, has seen its order backlog shrink from 476,000 units in July 2022, to 74,000 in December 2022.

This has been attributed to Tesla’s robust production growth, which saw 2022 production increase 41% over 2021 (from 930,422 to 1,313,851 units).

With the days of “endless” demand seemingly over, Tesla is going on the offensive by reducing its prices—a move that puts pressure on competitors, but has also angered existing owners.

Cranking up the Heat

Tesla’s price cuts are an attempt to protect its market share, but they’re not exactly the desperation move some media outlets have claimed them to be.

Recent data compiled by Reuters shows that Tesla’s margins are significantly higher than those of its rivals, both in terms of gross and net profit. Our graphic only illustrates the net figures, but gross profits are also included in the table below.

Company	Gross profit per car	Net profit per car
🇺🇸 Tesla	$15,653	$9,574
🇺🇸 GM	$3,818	$2,150
🇨🇳 BYD	$5,456	$1,550
🇯🇵 Toyota	$3,925	$1,197
🇩🇪 VW	$6,034	$973
🇰🇷 Hyundai	$5,362	$927
🇺🇸 Ford	$3,115	-$762
🇨🇳 Xpeng	$4,565	-$11,735
🇨🇳 Nio	$8,036	-$19,141

Data from Q3 2022

Price cutting has its drawbacks, but one could argue that the benefits for Tesla are worth it based on this data—especially in a critical market like China.

Tesla has taken the nuclear option to bully the weaker, thin margin players off the table.
– Bill Russo, Automobility

In the case of Chinese EV startups Xpeng and Nio, net profits are non-existent, meaning it’s unlikely they’ll be able to match Tesla’s reductions in price. Both firms have reported year-on-year sales declines in January.

As for Tesla, Chinese media outlets have claimed that the firm received 30,000 orders within three days of its price cut announcement. Note that this hasn’t been officially confirmed by anyone within the company.

Tit for Tat

Ford made headlines recently for announcing its own price cuts on the Mustang Mach-E electric SUV. The model is a direct competitor to Tesla’s best-selling Model Y.

Chevrolet and Hyundai have also adjusted some of their EV prices in recent months, as listed in the following table.

Model	Old Price	New Price	Discount
Tesla Model Y Long Range	$65,990	$53,490	18.9%
Chevrolet Bolt EUV 2023	$33,500	$27,200	18.8%
Tesla Model Y Performance	$69,990	$56,990	18.6%
Chevrolet Bolt 2023	$31,600	$26,500	16.1%
Tesla Model 3 Performance	$62,990	$53,990	14.3%
Hyundai Kona Electric 2022	$37,390	$34,000	9.1%
Ford Mustang Mach-E GT Extended Range	$69,900	$64,000	8.4%
Tesla Model 3 Long Range	$46,990	$43,990	6.4%
Ford Mustang Mach-E Premium AWD	$57,675	$53,995	6.4%
Ford Mustang Mach-E RWD Standard Range	$46,900	$46,000	1.9%

Source: Observer (Feb 2023)

Volkswagen is a noteworthy player missing from this table. The company has been gaining ground on Tesla, especially in the European market.

We have a clear pricing strategy and are focusing on reliability. We trust in the strength of our products and brands.
– Oliver Blume, CEO, VW Group

This decision could hamper Volkswagen’s goal of becoming a dominant player in EVs, especially if more automakers join Tesla in cutting prices. For now, Tesla still holds a strong grip on the US market.

tesla US market share

Thanks, Elon

Recent Tesla buyers became outraged when the company announced it would be slashing prices on its cars. In China, buyers even staged protests at Tesla stores and delivery centers.

Recent buyers not only missed out on a better price, but their cars have effectively depreciated by the amount of the cut. This is a bitter turn of events, given Musk’s 2019 claims that a Tesla would be an appreciating asset.

I think the most profound thing is that if you buy a Tesla today, I believe you are buying an appreciating asset – not a depreciating asset.
– Elon Musk, CEO, Tesla

These comments were made in reference to Tesla’s full self-driving (FSD) capabilities, which Elon claimed would enable owners to turn their cars into robotaxis.