ETF Inflows Hit Record $464B in 2017


Twenty seventeen was a year for the record books when it came to exchange-traded fund inflows.

As New York Yankees sports broadcaster John Sterling would put, substituting inflow amounts for a well hit baseball, “It is high. It is far. It is gone! Home run!” The same can be said for ETF inflows – which topped over $464 billion in 2017, shattering the previous record of $288 billion set in 2016, according to State Street Global Advisors. The firm had originally expected inflows to top $300 billion in their November report.

According to Matthew Bartolini, Head of SPDR Americas Research at SSGA, inflow activity was expected from an asset class perspective with equity ETFs grabbing more than $334 billion for the year, followed by fixed income ETFs which attracted $126.6 billion – the first time ever inflows topped $100 billion.

Matthew Bartolini, SSGA

As Bartolini put it, ETFs, like the broader equity markets were, ”in the zone.” And this followed a stellar 2016 – when ETFs were also  viewed as being “in the zone.”

“It’s just that it’s rare to see records and ETF flows broken so consistently, and with such vigor,” he said. “In 2016 exchange traded funds (ETFs) had a banner year with $288 billion of inflows, surpassing the all-time high of $245 billion set just a year before in 2015. So how did we get here? Equities had something to do with it with $334 billion of net inflows throughout the year, receiving a boost with $40 billion deposited in December alone. But when you dig into the advanced statistics, it was all about bonds in 2017.”

Much like the broader industry, fixed income ETFs took in a record haul, Bartolini noted, surpassing the $100 billion mark for the first time ever as well as the $500 billion mark in total assets under management. However, it is the growth rate that he found much more eye-popping and the telling stat of an emerging investment vehicle.

“Fixed income ETFs took in a staggering 28 percent of its start of year assets, almost doubling the growth rate of equity funds. The big question is whether or not this will continue, both for ETFs broadly, as well as, for fixed income funds alone,” Bartolini told Traders Magazine. “While predictions should be taken with a grain of salt, ETFs should continue to garner assets at elevated growth rates due to the heightened focus on the cost of an investment vehicle – a notion underscored by the fact that roughly 60 percent of the $434 billion of flows went into low cost instruments.”

So, what can we expect for fixed income moving forward? Growth? Stagnantion? Or reversal?

Bartolini said that when it comes to fixed income inflow growth, two factors may fuel future advances. First, he explained would be asset allocation.

“Fixed income ETFs have a 17 percent share of ETF assets under management; with more assets flowing into ETFs and assuming a standard 60/40 asset allocation split, fixed income exposures are likely to maintain a higher growth rate,” he said.

Secondly, would be demographics. In a nutshell, the US population is getting older and there is a persistent need for income. Stable income. And that is not found in equities – just ask anyone who lived through the 2008 financial crisis.

From a global perspective, investors deposited over $38 billion into emerging market ETFs in 2017 – another record for inflows in a given year.

This year, the headline ETF story as that US exposures have taken in more flows on an absolute basis, but international funds have been able to grow faster, Bartolini observed. While both areas took in record amounts for a given calendar year, the $160 billion taken in by non-US exposures equates to a 20% bump in start of year assets, nearly double the US figure of 11%.

“The rationale for this fervent interest overseas is predicated upon two aspects: stretched valuations in the US and attractive valuations overseas combined with improving growth, particularly within the Eurozone, a region on pace to register its strongest growth since 2011,” Bartolini said. “And remember those 45 countries in the MSCI ACWI Index with positive returns in 2017? The US ranked 34th.”

In looking down the emerging market’s pike into 2018, Bartolini said that given the underlying macro and fundamental tailwinds, this trend of flows into international funds is likely to continue. “Emerging markets will play an important part in this trend, even after investors deposited $38 billion of total flows in 2017 – a figure 380 percent higher than the average annual flows over the past 15 years — and the most into emerging market ETFs in a given year.”






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