ETF Trends
ETF Trends

There are many times in life when we avoid doing something because we fear the unknown. Then there are the times when we take a leap and, after some work, things fall into place. My career followed the latter path, as my foray into financial services was something that I did reluctantly, not knowing what to expect, moving to new locales. I’ve learned so much in the years since, developing a passion for markets, macroeconomics and investor behavior, among others.

The ETF market is one of my key interests as I now spend my time evaluating market trends to learn more about what global investors are seeking, and what kinds of sectors or asset classes are gaining or losing momentum based on exchange traded fund (ETF) flows data. This year, it seems more investors are taking a leap into the ETF world, as global flows totaling $267.9 billion year-to-date have broken the yearly record set in 2012. The industry continues to grow at a double digit pace.

Where Investors are focusing their Attention

In 2014, we saw three key trends emerge to put the ETF industry on track for a record year, specifically:

  1. Fixed Income: Investors flocked to fixed income ETFs, despite record-low interest rates, to the tune of $78.6 billion. This makes sense, as this category includes safe havens like Treasuries, broad U.S. fixed income and investment grade corporate debt. As the search for income continues, we’ve also seen many investors turn to high yield corporate bonds and municipals. This is happening in regions outside the U.S., as Europe has also joined the party.
  2. Europe-listed: Flows into Europe-listed ETFs set a new record this year, bringing in three times the level they reached last year, or $60.8 billion. It’s no surprise that fixed income Europe-listed ETFs saw the bulk of this, with investment grade corporate debt the primary driver, due to the softening of Europe’s growth outlook and the anticipation of an expansion of the ECB’s bond purchase program. What’s more, we saw increased adoption of Europe-listed funds all over the world.
  3. U.S. Equities: This was truly a surprise, as the U.S. equity market got off to a very sluggish start in 2014. We were almost certain we would have anemic growth. Instead, the U.S. proved to be the “safe haven” for equity exposure due to a U.S. outlook that was proven strong relative to elsewhere in the world.

While these trends say a lot about the market environment investors faced in 2014, they also carry implications for 2015 – implications we should keep in mind as we head into next year. As my colleague Sara Shores points out in a recent Blog post, more investors are starting to utilize smart beta strategies, driven by a pursuit of tailored exposures not available via traditional market cap weighted funds. Specifically, we believe smart beta funds with a focus on minimum volatility will start to become even more popular as volatility has returned and is likely to persist in 2015. You can read more about our take on volatility here.

Amy Belew, Managing Director and head of Global Business Intelligence for Global iShares, is the newest contributor to The Blog.

This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any security in particular.