Amanullah Khan, CFA

Assistant Manager

Strategy, Products & Data Science

The Rise of ETFs: A Global Investment Revolution

The global financial landscape has undergone a profound transformation over the past few decades, driven by the emergence and widespread adoption of Exchange-Traded Funds (ETFs). These investment vehicles have reshaped how individuals and institutions allocate capital, offering a low-cost, transparent, and efficient alternative to traditional mutual funds. Assets invested in global ETFs have almost reached $17 trillion1, with more than 14,5001 ETFs trading on major exchanges, thus making ETFs a cornerstone of modern investing.

A Brief History: From Concept to Global Phenomenon

The idea of pooled investments dates back to the launch of the Qualidex Fund2 in 1970, the first open-end index mutual fund available to retail investors, designed to track the Dow Jones Industrial Average index. In 1975, Vanguard2 introduced the S&P 500 Index Fund, a landmark in making passive investing mainstream. ETFs are another form of pooled investment vehicle. The first ETF was launched in the Canadian market in 19902 to track the return of 35 large stocks listed on the Toronto resonating with a broad base of Shariah- compliant investors. As of now, nine ETFs are listed on the exchange, covering equity, debt, sector-specific, and Shariah-compliant strategies.

Current Landscape and Market Dynamics

While ETFs currently represent only a modest market share of Pakistan’s investment industry, interest is surging especially among first-time retail investors. With over 50% of listed companies being Shariah-compliant and almost 75% of trading value dominated by these stocks, the environment is ideal for passive investment vehicles like ETFs.

Improved macroeconomic indicators such as declining policy rates, a current account surplus, and an S&P sovereign rating upgrade have also contributed to a more attractive investment climate.

Strong Returns and Outperformance

In recent years, ETFs have frequently outperformed the broader PSX indices:

• JS Momentum Factor ETF delivered a return of over 68% in FY25, and above 130% in FY24
• UBLPETF, NITGETF, and JSGBETF offered 60–77% returns, outpacing the KSE-100 Index’s 60.15% return (in PKR terms)
• Shariah-compliant ETFs like Mahaana Islamic Index ETF (MIIETF) and Meezan Pakistan ETF (MZNPETF) also performed well, boosted by transparency and retail interest
• Even conservative options like the HBL Total Treasury ETF returned over 17%, appealing in a declining rate environment management, marking a shift toward more dynamic, strategy-driven investment solutions in the ETF space.

Best Practices for New ETF Investors

For newcomers to ETFs in Pakistan, it’s important to understand the underlying ETF strategy and fees structure before investing. Avoid speculative trading and consider ETFs as tools for long-term goals. Unlike mutual funds, ETFs disclose their underlying constituents daily which provides transparency and trade throughout the day. Dividends are typically paid as bonus units or cash, with at least 90% of income distributed to investors. Additionally, some ETFs trade on the futures counter, offering unique return opportunities for those seeking diversified exposure.

Conclusion: ETFs Are Reshaping Pakistan’s Investment Future

ETFs are not just another financial product, they represent a paradigm shift in how Pakistanis save, invest, and participate in economic progress. With cost-effective, transparent, and diversified exposure now within reach of every investor, ETFs are poised to play a transformative role in Pakistan’s capital markets.

As the ecosystem matures with improved infrastructure, cross-border partnerships, and investor education, ETFs will become a mainstay in retail and institutional portfolios alike.

Muhammad Hamza Khan

Assistant Manager

Strategy, Products & Data Science

Stock Exchange. However, the real turning point came in 1993, when SPY, the first U.S.-listed ETF was launched in partnership with S&P and the American Stock Exchange. SPY allowed investors to buy and sell an entire index like a stock, revolutionizing access to diversified investing.

Following SPY’s success, ETFs expanded rapidly across global markets, including Canada, Europe, and Asia. Over time, innovations like thematic ETFs, ESG-compliant ETFs, and actively managed ETFs further diversified the landscape.

Pakistan’s ETF Journey: First Listings and Market Entry

Pakistan entered the ETF space in March 2020 with the listing of its first two ETFs on the Pakistan Stock Exchange (PSX), the UBL Pakistan Enterprise ETF (UBLPETF) and the NIT Pakistan Gateway ETF (NITGETF). These launches marked a pivotal shift in a market traditionally dominated by bank deposits, national savings schemes, and actively managed mutual funds.

Later in the same year, the Meezan Pakistan ETF (MZNPETF) was introduced, offering a Shariah-compliant investment avenue.

Trading Activity and Liquidity

ETFs like JSGBETF, MIIETF, and JSMFETF depict healthy trading activity, averaging PKR 3 to 4.5 million daily since inception. MIIETF, notably, maintained 100% active trading days, suggesting increasing investor confidence and consistent market activity. While equity ETFs dominate, debt-based products are slowly gaining traction and represent future expansion opportunities.

Education, Inclusion, and Cross-Border Potential

Programs like “PSX Battle of the Bulls”, ETF trading simulations, Urdu-language resources, and PSX/SECP webinars have played a crucial role in educating young investors. These initiatives have led to notable increases in trading volume and participation, particularly from digitally engaged users.

With a robust ETF ecosystem, multiple fund managers, market makers, and enabling regulations, Pakistan is a strong candidate for cross-listed ETFs with other Asian markets.

Future Outlook and Strategic Opportunities The government’s “Uraan Pakistan” strategy prioritizes sectors like green energy, fintech, and digital infrastructure which are ideal candidates for thematic ETFs. Launching Shariah-compliant startup ETFs, ESG-aligned funds, or impact investment vehicles could unlock new sources of capital.

Technological innovation is enhancing ETF accessibility through robo-advisors and mobile-first apps. ETFs are evolving to align with ESG trends and national goals. Actively managed ETFs, popular globally, offer potential for alpha and volatility.