With investor inflows reaching US$659 billion, the ETF industry is expected to have a record year
As the stock and corporate bond markets rebound to new peaks, asset management companies are increasingly turning to tools for building investment portfolios, and investors are injecting funds into exchange-traded funds at a historic rate.
ETFGI data shows that the inflow of funds into ETFs is expected to exceed the record level in 2020. The total amount of funds in the first six months of 2021 was US$659 billion, compared with US$767 billion for the whole of last year.
As of June 30, the net inflow of global equity ETFs has exceeded last year’s 459 billion U.S. dollars, exceeding 366 billion U.S. dollars and 283 billion U.S. dollars in 2020 and 2019, respectively.
The boom reflects the strong rebound of asset prices from the 2020 pandemic lows, but it also shows how fund managers can use ETFs as an important tool in their investment portfolios, replacing or combining them with individual securities in some cases.
The global market is already $9 trillion, and the rapid growth in the ETF field is forming a bullish view among large companies such as BlackRock, State Street, and Invesco.
Salim Ramji, Global Head of iShares and Index Investments at BlackRock, said: “It took 15 years for iShares’ assets to reach US$1 trillion, and it took another five years to reach US$2 trillion, and another two years. It broke through the 3 trillion U.S. dollar mark.” The asset management company predicts that by 2025, the global market will expand to 15 trillion U.S. dollars.
The group said on Wednesday that BlackRock’s iShares division attracted $75 billion in net traffic in the second quarter of this year and exceeded $3 trillion in assets in June. The quarterly flow was higher than the US$51 billion a year ago and accounted for the majority of the US$81 billion in inflows by asset management companies in the last three months.
The hot spots for long-term growth include expanding investor activity in the fixed income sector, wealth advisors’ growing preference for model portfolios-such as those that target 60% stocks and 40% bonds, and increasing exposure. The welcome commission considers environmental, social and corporate governance standards.
Among the many growth drivers, traditional stock pickers who aim to buy companies that can surpass the performance of the broader market are increasing the use of ETFs in actively managed portfolios.
Todd Rosenbluth, head of research for mutual funds and ETFs at CFRA, said: “Asset managers have found a way to participate in ETFs, allowing them to use their stock selection and portfolio building expertise.” “Insurance companies. And other institutional investors’ adoption is accelerating.”
According to data from BlackRock, the assets held in the US model portfolio market will more than double from US$4 trillion to US$10 trillion in the next five years. It expects that in the future half of the inflow of new investors in the US ETF sector will come from model portfolios, which is higher than about one-third of 2020.
State Street Group, the third largest ETF provider in the world, is also expanding its model portfolio business.
“We are working hard to establish partnerships with other suppliers and provide our internally developed model portfolio,” said Rory Tobin, global head of ETF at State Street Global Investment Management. It cooperated with French asset management company Natixis to provide a model portfolio to US financial advisors through the Bank of America platform at the end of 2019.
This year, bond ETFs are absorbing new client funds at a slower rate than their stock peers. ETFGI data shows that the inflow in 2021 will be US$112 billion, and the total in 2021 will be US$231 billion.
Jason Bloom, director of fixed income and alternative ETF strategy at Invesco, said: “In their respective ETF life cycles, fixed income lags behind equities by ten years.”
Bloom said that before the launch of a new ETF, retail investors and even financial advisors would not easily enter the fixed income field, including asset-backed securities and bank loans. “You can now enter certain fixed income markets that you didn’t have before.”
Bond ETFs emerged from the pandemic crash in March 2020 and are known for passing stress tests. The Fed’s decision to purchase ETFs that track corporate bonds also played an important role in easing market turmoil and investor concerns about the product.
However, Credit Suisse senior equity research analyst Craig Siegenthaler (Craig Siegenthaler) pointed out that if the benign market environment becomes more turbulent, it may be difficult for ETF providers to continue to grow at such a rapid rate.
“Most investment circles are optimistic about ETFs, and the scale of fixed income is expected to grow, but if there is a bear market, it will be more difficult for the industry to maintain growth at the rate we see,” he said.