FRANKFURT (dpa-AFX) - The sharp price turbulence on the stock market due to the tariff chaos in the US has recently pushed an anniversary on the stock exchange into the background: a small revolution in investment began here in Germany a good 25 years ago. On April 11, 2000, trading in exchange-traded funds (ETFs), i.e., investment funds that track indices, began on the German Stock Exchange in Frankfurt. This allowed investors to invest in the broad market at a relatively low cost.

It took around ten years for the concept of exchange-traded funds, which was first used on the Toronto Stock Exchange in 1990, to spread to Germany. It was the beginning of a success story: according to figures from the industry association BVI, the ETF assets managed for investors in Germany have grown to €300 billion to date – that is almost 20 percent of the assets invested in open-ended mutual funds throughout Germany.

ETFs track indices such as the German DAX or the international MSCI World Index. In this way, however, individual sectors, asset classes or a wide variety of themes can also be represented in general terms. ETFs thus follow a basic rule of investing: don't put all your eggs in one basket! Diversification is intended to limit risk.

Investors also benefit from the price advantage that ETFs have over actively managed funds. The latter attempt to achieve a better return than the market by actively selecting suitable assets – but the prospects of success are uncertain.

Markus Lautenschlager, head of portfolio management at Kempten-based asset manager BV & P, emphasizes: "While traditional active equity funds often incur total costs of over 1.5 percent plus an initial sales charge, the ongoing costs of ETFs are usually less than 0.5 percent – a cost level that is close to the institutional investment standard." ETFs also offered decisive advantages for his industry. In addition to transparency and flexibility, they enabled efficient and precise portfolio management.

Curiously, however, the advantage that ETFs only track the market is also a disadvantage of this asset class – in two respects. This is because ETF investors who invest in only one market may miss out on the excess returns that active managers can generate in individual cases if they happen to have current high performers in their portfolios, whether by chance or not. This can lead to disappointment. On the other hand, ETFs also get into trouble when the overall market comes under severe pressure. Actively managed funds may score points here if they use special hedging strategies to reduce losses.

In this respect, investment expert Sven Langenhan from asset manager HRK Lunis also urges caution: "It is important to bear in mind that passive investing, as is often suggested with ETFs, does not and cannot exist." Whether, how much, and exactly where to invest is always an active decision. It is also important to know whether you feel comfortable with your investment decision and what risks are associated with the selected ETF.

This is because the choice of ETFs is currently huge. According to the rating agency Scope, there are currently around 850 exchange-traded funds approved for trading in Germany. Measured in terms of total assets under management, these represent around 1.6 trillion euros in investment funds.

Saidi Sulilatu from the financial advice website Finanztip advises investors to focus on the essentials: "We recommend ETFs that invest globally and are broadly diversified. The investment horizon should be at least 15 years." This is because, historically, the market has always recovered from temporary losses during this period. The slump at the beginning of April in response to the US government's massive tariff package was even absorbed after just over a month.

Other ETF playgrounds, such as the currently highly sought-after active ETFs, deviate from the principle that private investors should not have a market opinion, according to the Finanztip expert. Active ETFs often only loosely track an index and rely on the expertise of fund managers to combine the simplicity of a listed fund with the chance of above-average returns. As an investor, you have to trust that the fund management will, for example, select or weight the respective stocks correctly, says Sulilatu. These products thus offer "old wine in cheaper bottles."/la/ag/mis

--- By Lutz Alexander, dpa-AFX ---