04.11.2016

Global ETF Assets Exceed $3 Trillion

04.11.2016
Shanny Basar

Assets invested globally in exchange-funds and products have broken through the $3 trillion barrier as institutional investors are increasingly using factor-based strategies.

Consultancy ETFGI said it was the second time that the ETF industry has surpassed the $3tr (€2.6tr) milestone, the first time being the end of May last year.

At the end of last month assets totalled $3.07 trillion according to ETFGI’s global ETF and ETP industry insights report. During March the industry gathered $45.3bn, marking net inflows for 26 months.

Deborah Fuhr, managing partner at ETFGI, said in a statement: “US equities rebounded in March ending the month up 7%. Emerging markets and developed ex US markets also had a strong March ending up 12.5% and 7.2% respectively. Based on comments from the Fed there is a growing belief that interest rates will be held lower for longer than previously anticipated.”

As a result equities gathered the largest net inflows of $26.3bn last month followed by fixed income with $14.8bn, with commodities having the smallest inflows of $2.42bn. However in the first three months of this year fixed income ETFs gathered record quarterly net inflows of $43.7bn according to BlackRock.

In the first quarter BlackRock’s ETF business, iShares, gathered the largest net inflows of $24.54bn according to ETFGI. Vanguard was second with $17.8bn and then State Street’s SPDR ETFs with $8.78bn.

A new study last week sponsored by BlackRock and conducted by The Economist Intelligence Unit found that institutional investors are increasingly employing factor-based strategies across their investment process.

The survey said: “Respondents believe factors can help them deliver long-term outperformance, decrease overall portfolio risk, increase transparency in portfolio construction, and better understand past and future drivers of return.”

Factor investing involves distilling investments into something very simple such as macro-economic factors – which could be economic growth, inflation and interest rates – and style factors like value, quality, momentum and volatility. For example, smart beta and factor ETFs do not track standard market-weighted indexes but follow bespoke indexes which offer outcomes such as low volatility. They are more complex than standard ETFs and their risks need to be clearly explained to investors.

More than 85% of survey respondents use factors in some part of the investment process and nearly two-thirds said they have increased their use. The global survey was conducted among 200 institutional investors representing $5.5 trillion in assets under management. Nearly two-thirds, 60% of respondents, said they plan to increase their use of factors over the next three years to improve returns.

Mark McCombe, global head of BlackRock’s Institutional Client Business, said in a statement: “As is often the case, adversity has given rise to innovation. Following an initial focus on risk management, investors increasingly believe that factor strategies can drive enhanced performance.”

Value was the most commonly targeted style factor and inflation was the most commonly used macro factor. Equity factor strategies (e.g. smart beta) are most widespread, used by 68% of investors, but more advanced long/short multi-asset strategies are also used by 57% of those who invest in factors.

Featured image via Redindie/Dollar Photo Club

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