What Affects Exchange Traded Fund

Interest rates are the single biggest factor affecting exchange traded funds, as they decrease the value of bond-heavy ETFs by 10-15% when they rise, such as the iShares Core US Aggregate Bond ETF, which lost 12% of its value in 2018 when interest rates increased (Federal Reserve).

Main Factors

• Economic indicators — such as GDP growth rate, increase the value of ETFs focused on specific sectors, like the VanEck Vectors Semiconductor ETF, which rose 35% in 2020 when the US GDP growth rate was 2.3% (Bureau of Economic Analysis), with the magnitude of the increase depending on the sector's sensitivity to economic growth.
• Commodity prices — increase the value of ETFs tracking commodity indices, such as the SPDR Gold Shares ETF, which gained 25% in 2019 when gold prices rose 15% (World Gold Council), with the magnitude of the increase depending on the specific commodity and the ETF's investment strategy.
• Sector rotation — varies the value of ETFs focused on specific sectors, such as the Vanguard Information Technology ETF, which rose 45% in 2020 when investors rotated into tech stocks, while the Vanguard Financials ETF fell 15% (Vanguard), with the magnitude of the change depending on the sector's popularity and the ETF's holdings.
• Inflation expectations — decrease the value of bond-heavy ETFs, such as the iShares TIPS Bond ETF, which lost 5% of its value in 2020 when inflation expectations rose (Bureau of Labor Statistics), with the magnitude of the decrease depending on the ETF's duration and the level of inflation expectations.
• Regulatory changes — decrease the value of ETFs affected by new regulations, such as the Invesco Solar ETF, which fell 20% in 2018 when the US imposed tariffs on solar panels (US Trade Representative), with the magnitude of the decrease depending on the specific regulation and the ETF's holdings.
• Investor sentiment — varies the value of ETFs, such as the SPDR S&P 500 ETF Trust, which rose 25% in 2020 when investor sentiment improved, while the ProShares Short S&P 500 ETF fell 30% (Investor's Business Daily), with the magnitude of the change depending on the level of investor optimism or pessimism.

How They Interact

The interaction between interest rates and inflation expectations can amplify the effect on bond-heavy ETFs, as higher interest rates and inflation expectations can decrease the value of these ETFs by 15-20%, such as the iShares Core US Aggregate Bond ETF, which lost 18% of its value in 2018 when interest rates and inflation expectations rose (Federal Reserve). The interaction between sector rotation and economic indicators can also amplify the effect on sector-specific ETFs, as a strong economy can increase the value of these ETFs by 30-40%, such as the VanEck Vectors Semiconductor ETF, which rose 40% in 2020 when the US GDP growth rate was 2.3% (Bureau of Economic Analysis). The interaction between commodity prices and regulatory changes can cancel each other out, as higher commodity prices can increase the value of commodity-tracking ETFs, while new regulations can decrease the value of these ETFs, such as the SPDR Gold Shares ETF, which gained 10% in 2019 when gold prices rose, but fell 5% when the US imposed tariffs on gold (World Gold Council).

Controllable vs Uncontrollable

• Controllable factors:
• Regulatory changes — controlled by government agencies, such as the US Securities and Exchange Commission, which can impose new regulations on ETFs, affecting their value.
• Investor sentiment — controlled by investors, who can choose to buy or sell ETFs based on their sentiment, affecting the ETFs' value.
• Uncontrollable factors:
• Economic indicators — affected by macroeconomic trends, such as GDP growth rate and inflation rate, which are outside the control of individual investors or government agencies.
• Commodity prices — affected by global supply and demand, as well as geopolitical events, which are outside the control of individual investors or government agencies.
• Interest rates — set by central banks, such as the Federal Reserve, which can affect the value of bond-heavy ETFs, but are outside the control of individual investors.