In the 1970s, Paul Samuelson published an academic article titled Challenge to Judgment, in which the economist and Nobel Prize winner questioned the ability of active managers to consistently outperform the market and proposed that financial institutions create funds that track indexes such as the S&P 500.

Who would have thought that, decades later, this idea would be seen as a milestone for the emergence of exchange-traded funds (ETFs), which now move over $14 trillion globally, with $10 trillion just in America.

ETFs represent an industry that has been growing over 20% annually since 2009. This rapid growth is due to factors such as reduced complexity in investing, easy access through the stock market environment, transparent structure, ease of identifying interests alignment, and low costs for the final investor.

The first movers in this market were able to dominate it. Today, a trio of management companies – BlackRock, Vanguard, and State Street – alone hold over $7 trillion of the total ETF assets, accounting for more than 50% of the market.

The ETF market is so robust that this year, 31 years after the first ETF was launched in the American market, passive investments exceeded the volume of active products, according to Morningstar.

Between 2010 and 2023, net deposits into passive products grew from 26% to 84% of the investment fund industry in America, totaling over $6 trillion. A strong indication that Samuelson was right: asset prices behave randomly, making it virtually impossible for an investor to consistently outperform the market.

However, what’s interesting is that ETFs are now impacting not only passive products but also active ones. Recently, a wave of large hedge funds is shifting their structures to active ETFs – a recognition of their increased efficiency and scalability compared to traditional mutual funds. Thus, ETFs have begun to absorb another market, the active funds market, and currently the total volume in active ETFs is approaching $1 trillion.

This phenomenon is no longer confined to the American market, growing in other mature markets such as Canada, Japan, and Europe, as well as expanding markets like the Middle East and continental Asia, which have shown double-digit growth in ETF assets under management annually over the past 10 years.

And Brazil, where does it fit into all of this?

Twenty years after the first ETF was launched, the ETF market in Brazil has grown at an annual rate of 16% between 2006 and 2024, reaching a total of R$44 billion, according to Anbima.

However, this value still represents less than 0.5% of the investment fund industry, which manages over R$9 trillion. Nevertheless, signs of seismic tremors are beginning to be felt here as well. The new Instructions 175 and 179 from the Securities and Exchange Commission aim to promote greater transparency in financial products, a characteristic that ETFs already have in their design.

Additionally, the increasing adoption of the fee-based model by investment advisors, more aligned with clients’ interests, is expected to boost the adoption of ETFs, replicating the trend seen in the US over the past decade. This push and the popularization of ETFs occur because managers can create custom solutions that efficiently and scalably meet the specific needs of different types of clients.

Samuelson wrote about index funds over five decades ago, and only now are we beginning to see this transformation in the Brazilian market. There is a structural trend underway, both globally and in Brazil, towards more transparency, liquidity, and democratization of access to investments.

Will Brazilian investors be ready to embrace this change and take advantage of the benefits offered by ETFs? We believe so. Regulatory evolution, increasing financial education, and alignment with global trends are strong indicators that Brazilian investors are increasingly prepared to adopt ETFs as innovative investment tools.


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