All indications are that 2021 will be an unprecedented record year for equity ETFs. In the first six months alone, inflows reached USD 519 billion. This means that all previous records have already been broken. Decades of growth for passive products await’.
This is what BlackRock says on the basis of its latest monthly report on global inflows and outflows. The first half of 2021 was characterised by a risk-on sentiment, says the US asset manager. The substantial ETF inflow is a clear indicator of this. The most pronounced figure is the inflow of more than USD 500 billion in equity ETFs, in just six months.
Total ETF inflows in June were $122 billion, up from $97.3 billion in May and the third highest inflow ever. Equity ETFs were the main draw, at USD 101.5 billion. Bond ETFs attracted $20.8 billion in new money.
Assets under management to 15,000 billion
BlackRock predicted last month that the assets under management of exchange-traded ETFs would reach USD 15,000 billion by the end of 2025. The growing demand for ESG-related strategies and the increasing use of ETFs by bond investors are particularly important in this regard.
Currently, ETFs account for no more than 3 per cent of assets under management in global equity and bond markets. According to Salim Ranji, global head of iShares & index investments at BlackRock, the growth potential for ETFs is unprecedented. There are decades of growth ahead for ETFs.
Deborah Fuhr, founder of research firm ETFGI, even speaks of a ‘tectonic shift’. Thematic ETFs in particular are finding a lot of interest. The first Thematic ETF was listed in 2001, the so-called iShares North American Natural Resources ETF. At the end of May 2021, the counter stood at 758 thematic ETFs and ETPs worldwide, with 1,464 listings and total assets of 414 billion, spread across 195 providers on 48 exchanges in 40 countries.
Despite the performance of ETFs, investors must remain alert to the risks. Research by Morningstar previously showed that thematic funds underperform over the long term. Overly narrow themes and high volatility mean that most of these funds do not outperform global equity benchmarks, according to Morningstar.
Drop in ETF management fees
Another notable development is that the decline in fees for ETFs is slowing. This appears to put an end to years of pressure on index tracker management fees. The latter is fuelled by fierce competition. By lowering the fees, the large market players succeed in pushing the smaller parties onto the defensive - the index tracker market is pre-eminently a game of scale.
The ongoing price war resulted in a 43 per cent drop in fees for managing US ETFs between 2012 and 2020. In Asia, fees fell by as much as 51 per cent over the same period, according to research by JPMorgan.
The US bank’s researchers say this downward trend now appears to be coming to an end. “The figures suggest that both ETF providers and active investors are beginning to focus more holistically on structural differences between products, and a little less on the increasingly narrow price differences between them.”