Investors allocated another $42 billion to exchange traded funds last month, bringing year-to-date ETF inflows to $192 billion as the U.S. ETF industry is now within striking distance of the lofty $2 trillion in assets under management mark.
Institutional investors continue to be key drivers of ETF asset growth, a theme that is expected to continue in 2015. In its 2014 U.S. Institutional ETF Usage Report, BlackRock (NYSE: BLK) 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.”
BlackRock, the world’s largest asset manager and parent company of iShares, the world’s largest ETF issuer, surveyed over 1,130 pensions, foundations, endowments, asset managers, consultants, and insurers (up from 350 respondents in 2010), according to the report.
International equities and fixed income were highlighted as two primary areas of increased ETF usage by institutional investors. With U.S. interest rates remaining low, investors have flocked to U.S.-focused bond ETFs this year with the iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG) and the Vanguard Total Bond Market ETF (NYSEArca: BND) ranking among the top-10 asset-gathering ETFs. [Bond ETFs Protect in Volatile Markets]
Other prolific bond ETF asset gatherers include the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT), which has added $2.86 billion in new assets. The iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) has seen inflows of nearly $3.2 billion while the SPDR Barclays Short Term High Yield Bond ETF (NYSEArca: SJNK) has benefited from investors’ thirst for shorter duration high-yield fare with $1.4 billion in new assets flowing into that fund. [October was a Huge Month for Bond ETFs]
While 2014 has been another rocky for emerging markets ETFs, a situation that has recently been exacerbated by plunging oil prices, ex-U.S. developed markets monetary easing has stoked inflows to an array of ETFs.
Japan’s ongoing stimulus efforts have sent new money into yen hedged ETFs, helping the iShares Currency Hedged MSCI Japan ETF (NYSEArca: HEWJ) go from relatively unknown to $286.2 million in assets under management, good enough to make HEWJ one the most successful ETFs to come to market this year.
The WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) has enjoyed a stellar showing this year. Buoyed by the European Central Bank’s stimulus efforts and speculation the ECB could soon uveil Federal Reserve-style bond-buying, also known as quantitative easing, HEDJ has added over $3.9 billion in assets this year. [Hedged Euro ETF Back in the Limelight]
HEDJ is now a $4.6 billion ETF after rising to $1 billion in AUM in April. Only nine ETFs have added more new assets this year than HEDJ.
“In 2014, institutional investors significantly increased exposure to fixed income and international equity ETFs. The proportion of respondents who hold domestic fixed income ETFs jumped to 42% in 2014 from 32% in 2013. International fixed income ETFs also saw strong gains, with 23% of institutions reporting they now hold them in portfolios. Across client segments use of fixed income ETFs is highest among insurers and asset managers. Growth in ETF demand is most pronounced in international equities where ETF usage is up 11 percentage points year-over-year. Much of this growth is attributable to insurers and consultants,” said BlackRock.