ETFs or Exchange Traded Funds spring from a simple and rather elegant idea. Instead of trying to beat the market, an investor can simply just invest in the market as a whole through an ETF. Being a passive instrument, it typically has lower costs than active funds. This idea first emerged in the US and the ETFs currently are a major force there. However, financial innovators soon added another element to this revolution—they built ETFs around various custom-made indices and branded some of them as ‘smart beta’. Their aim was to give investors some chance at beating the broader market while retaining a low cost and passive structure. The US market now has a host of ETFs tracking sectors, commodities, debt, other countries and even volatility itself (think VIX ETF).
