For the first time ever, there are more exchange-traded funds (ETFs) than individual stocks in the U.S.
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Data compiled by Morningstar (MORN) shows that there are more than 4,300 ETFs available on U.S. markets, a number that for the first time eclipses the total number of stocks, which stands at about 4,200 securities. Popular ETFs include the SPDR Gold Trust (GLD) that tracks the spot price of bullion, the Invesco QQQ Trust (QQQ) that tracks the Nasdaq-100 index, and the SPDR S&P 500 ETF Trust (SPY) that follows the movements of the benchmark U.S. index.
Morningstar and other analysts say that there has been an explosion of ETFs in the wake of efforts to democratize investing and take it out of the hands of institutions and wealthy individuals. At the same time, financial advisers are developing and marketing a growing number of funds to investors. However, some analysts warn that we might be reaching a saturation point with ETFs.
Tipping Point?
Exchange-traded funds are marketed and sold to investors as passive investment vehicles that offer low fees, diversification that lessens risk, and a way to track specific sectors of the economy or market such as artificial intelligence (AI) or the oil industry.
Morningstar says that ETFs now account for about 25% of all investment vehicles that are traded on U.S. markets, up from 9% a decade ago. While increasingly popular, some analysts worry that ETFs might be reaching a tipping point and that the sheer number of them is a sign of market froth.
Critics also claim that the abundance of ETFs makes it difficult for investors to choose the right funds for their portfolios, and note that many ETFs are becoming more complex and potentially riskier products, which may not be suitable for individual retail investors or people with little market knowledge.
Is the SPDR S&P 500 ETF Trust a Buy?
The SPDR S&P 500 exchange-traded fund currently has a consensus Moderate Buy rating among 504 Wall Street analysts. That rating is based on 419 Buy, 79 Hold, and six Sell recommendations issued in the last three months. The average SPY price target of $714.27 implies 10.48% upside from current levels.
