Today, we can identify five main types of ETFs:
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Passive |
Traditional index-based funds that track a specific asset class, market segment, or economic sector |
|
ESG |
Environmental, Social, and Corporate Governance funds exclude "unethical" companies and industries based on environmental and corporate governance criteria |
|
Actievely managed |
These funds were created in an attempt to revive interest in active management. Essentially, they are funds managed by a specific portfolio manager, offering their unique style and approach to asset management
|
|
Smart Beta & Factor-Based |
These funds aim to capitalize on anomalies in the returns of specific asset groups (factors) by adjusting the weightings of securities within traditional indices in an attempt to outperform them. Examples of factors include high-volatility (beta) sectors, small market capitalization, and high revenue growth |
|
Thematic |
Built around themes ranging from artificial intelligence to the aging population, and from cannabis to the adult entertainment industry, these funds offer diversification within niche sectors and align with broader social and socio-economic trends |
Based on etfgi.com data, 2021
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How should we view these trends in ETFs' development?
In our view, ETFs that are not based on a broad asset class or market segment index represent an attempt to transfer traditional strategies of discretionary portfolio management - a service that is losing popularity - into the realm of exchange-traded funds. By inventing new indices or strategies, asset management companies are trying to compensate for the sharp decline of their traditional services revenue, which began with the ETF revolution.
Essentially, all non-traditional funds are just "slices" of the broader market. Their goal is not diversification and risk reduction, but rather the concentration of risk, i.e. to its increase. After all, concentrating on one industry at the expense of another carries the risk of missing out on growth in areas where the fund has no exposure.
As portfolio theory demonstrates, broad diversification provides the best risk-return profile for a portfolio. The IskraIndex model is built on this principle, offering Deposit+ portfolios that, in calm market conditions, consist of 3–5 ETFs across different asset classes. If an investor wishes to have long-term exposure to a specific market sector or company, they can combine this exposure (via a corresponding asset or sector ETF) with the Deposit+ portfolio, limiting its weight to a reasonable 20–25%.
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