What is the best ETF and which to choose to invest in?

The first quarter of 2020 must be forgotten in the world of the stock market: better stocks, better etf, better PCO funds, all have fallen. Its benchmark indices such as the CAC40 and the Dow Jones recorded falls of more than 30% at the height of the crisis.

Many investors panicked when selling assets in the stock market. They did not know how to control their emotions and had a long term view.

However, the market rose again strongly, helped a little by central bank intervention to support it.

The stock market is not easy. OPC funds are expensive if you want a manager to go out and buy shares and expect to make a profit without knowing anything about the stock market.

In the world of financial products, ETFs are playing an increasing role, fees are low and they can facilitate stock market investment if the capital risk of such investments is accepted.

Example: you want to invest in CAC40 stocks, if you accept the risk of losing your capital, you buy an ETF, which will replicate the performance of the Paris Phrase Index.

It should also be remembered that some of them have managed to maintain a correct and even high level of performance since the pandemic reached the West.

Reading this article will help you learn to better understand ETFs and perhaps find the best ones.

Introduction to ETFs

Among the main watchwords for successful investment in the financial markets is “diversification” and this concerns both the primary and secondary markets.

This principle is all the more true when we see the increase in the number of investors who have suffered losses during this period of the coronavirus crisis because they have focused on only one or two types of assets.

It should also be borne in mind that we should not be content to play around between categories of assets, but also to break down by area. Thus, successful investors have taken the trouble to invest in energy, transport and health, for example, without forgetting to include Britain, American and international equities, among others, in their portfolio.

Fearing the management difficulties that can be caused by ignorance of the financial markets, many novices to stock market investment decide to keep very few financial assets because they believe they have better control over them.

Two options allow you to bet on many assets with a single investment:

OPC and ETF investment funds, also known as trackers.

The first is a portfolio composed of various securities that are managed in accordance with safety and return on capital objectives.

The second is based on the same concept, but is differentiated by its underlying asset, which is a stock market index representing a set of securities that share similar characteristics. This is the option that interests us most in this article.

Finally, the ETF has the advantage of being less costly in terms of fees than the OPC fund.

ETFs from their origin to their conquest of the Britain market:

To witness the birth of ETFs, we have to go back to 1992 in the United States. At that time, the SEC gave the green light for the establishment of the first index fund to be listed on the stock exchange corresponding to the no less well known S&P 500. The S&P Depository Receipts Trust Series 1, also known by its acronym “SDPRs”, made the issue of a 1993 US Stock Exchange listing and the rapid performance of this tracker a surprise to more than one.

It was only after this that the other major ETFs related to other reputable indices appeared, citing only the Dow Jones Industrial Average (“Diamond”) and the NASDAQ-100 (“Cubes”).

However, Great Britain had to wait until 2001 to see its first Euronext listed fund appear in the NextTrack segment. The latter soon received other elements in subsequent years, accounting for no less than 120 ETFs and EUR 40 billion in outstanding balances in 2006. However, European ETFs are increasingly under threat from their exotic competitors who, for their part, consider themselves to be profitable, although less secure in times of crisis.

A variety of ETFs according to all market configurations

Even today, several investors question the performance of ETFs, especially in times of crisis, believing that they have not been tested in a gloomier environment such as the current one.

Let’s admit that trackers are not in their first crisis. While people who invest in the best ETFs have done well after the recession of the early 1990s and the subprime crisis, they know that these funds can be a great investment in times of crisis.

Winning with ETFs means having a good time in the market and starting from the principle that passive management can be more efficient than an active fund manager.

It should also be recalled that it was to meet a need to limit the successive falls of the October 1987 crash that the US financial market authority decided to establish ETFs. The latter should therefore not experience particular problems, except for investors who venture into the universe of exotic ETFs, as they may, in the same context, experience similar concerns with any underlying asset or with traditional mutual funds.

In exotic ETFs: we can cite, for example, those with high leverage in an upward or downward index. The conclusion is not whether ETFs will fall more or less than an index they replicate. They are mainly there to access financial markets at a lower cost.

We also noted that during recent crises, particularly the subprime ones in the US, passive management with ETFs and an active OPC fund manager was working better and at a lower cost. One of the main reasons for this finding would be the role of central banks that buy heavily in the markets: the approach to valuing companies and stock-picking managers is altered.

It is also thanks to the financial crisis of 2008 that tracker subscriptions increased significantly and that these financial products gained more credibility in the world of asset management.

Thus, if in 2008, the outstanding balances did not exceed £800 billion, in 2019 the milestone of £5.6 billion was reached, thanks to the great awareness of Americans about the convenience of investment that trackers can offer them. However, European women contributed significantly, and their share of these outstanding amounts increased from £150 billion to over £900 billion between 2008 and 2009.

Different practices for investing in ETFs in Europe and America

Aware of the leading role played by the best ETFs in stabilising European and global financial conditions, the ECB has requested an inventory of this sector in the euro area. This made it possible to highlight some differences compared with the US competitor. Thus, while in the United States a large number of people are already investing directly in ETFs, in Europe this area remains the prerogative of institutional investors. Moreover, while in the States transactions are generally conducted on regulated stock exchanges, in Europe they are conducted over-the-counter and therefore off-platform. Furthermore, while Americans have a greater preference for equity ETFs over shares, Europeans, who are certainly more cautious, invest in bond ETFs. We have reserved a full section on ETF performance, but before we talk about it, it seems useful to inform you of the basics of understanding these ETF financial products.