After the stellar inflows totals posted by the exchange traded funds industry 2012 and 2013, another record year of asset gathering may have seemed unlikely at the start of 2014, but ETFs have defied the odds this year.
Through November, the ETF industry has added $267.9 billion in new assets, surpassing the record set in 2012. Strong demand for equity and fixed income funds has U.S. ETF inflows for 2014 sitting at $193.5 billion as of the end of November, according to BlackRock, parent company of iShares, the world’s largest ETF issuer.
Although U.S. stocks have continued rising this year, fixed income ETFs have swelled in popularity. That much was on display in October when U.S. bond ETFs hauled in $17.7 billion in new assets, easily surpassing the monthly record set in February. On a global basis, bond ETFs have seen assets by $78.6 billion, or 22% , to $430 billion. [Bond ETFs Dominate October Inflows]
The Vanguard Total Bond Market ETF (NYSEArca: BND) and the iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG) are two of the top 10 asset-gathering ETFs across all asset classes with combined 2014 inflows of nearly $12 billion.
“The global ETP industry is on track for organic growth of 11%, which exceeds mutual fund growth. ETPs are increasingly used as core buy-and-hold investments, precision exposures for strategic asset allocation when market conditions shift and liquid financial instruments for tactical positions,” said BlackRock.
That sentiment jibes with data released earlier this month by BlackRock regarding increased use of ETFs by institutional investors.
In its 2014 U.S. Institutional ETF Usage Report, which surveyed over 1,130 pensions, foundations, endowments, asset managers, consultants, and insurers (up from 350 respondents in 2010), BlackRock notes the “results show that institutional use of ETFs is expected to rise across the board. This trend holds true for both existing institutional ETF investors and those who do not currently hold ETFs.” [Institutions Boost ETF Use]
In 2015, institutional investors are expected to increase their allocations to fixed income and international equity ETFs.
“The global ETP industry continues to grow at a double digit pace as ETPs attract a broader base of global investors than ever before. ETPs are being used by capital market participants looking for deep liquidity, to investors seeking precision exposures, to a growing segment of the market using ETFs as buy and hold investment vehicle,” said Amy Belew, global head of ETP research at BlackRock, in a statement.
Not surprisingly, BlackRock highlighted smart beta ETFs as a prominent theme for industry growth. Smart beta ETFs have added $51.1 billion in new assets this year and have quadrupled in size since 2008, according to BlackRock data. Organic growth of 18% for smart beta ETFs is twice that of cap-weighted funds, said the asset manager. [Smart Beta ETFs Keep Gaining Traction]