Note: This article is courtesy of Iris.xyz

By Shundrawn A. Thomas

Intellectual curiosity is one of our core values at FlexShares. As such, we pay close attention to important trends impacting the ETF industry and the advisers we serve. Our value proposition is anchored by our collaborative engagement with market participants, intermediaries and investment advisors that serve individual and institutional clients.

This active engagement yields rich dialogue and constant opportunities to learn and grow. The combination of active engagement with stakeholders and the deep expertise offered by our investment professionals provides me with a rich viewpoint of the ETF marketplace. To this end, I offer the following perspectives on trends impacting the ETF marketplace. I hope that these unique insights will both peak your own intellectual curiosity and encourage your ongoing engagement with FlexShares as we seek to best serve you.

INDUSTRY OVERVIEW

Exchange-Traded Funds (ETFs) continue to be among the fastest growing product categories in the U.S. asset management industry with, a 10-year CAGR of 17.2%. In 2015, growth in the U.S. market increased +6.7% from the prior year to $2.1 trillion in assets as of 12/31/2015. U.S. listed ETFs attracted $235 billion in inflows in 2015, just shy of the $242 billion in flows from the prior year. The total assets at year-end (YE) represented a record total for the industry while flows logged their second best year ever. 2015 flows were driven primarily by international equity (+$103 billion), which more than doubled its inflows from 2014, thanks in part, to strong demand for currency hedged products. Taxable bonds finished with the second most inflows (+$56 billion), followed by U.S. equity (+$49 billion).

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It is important to note that the flows to international equities predominantly favored developed economies. Investors in U.S. equites continued to favor the ETF vehicle structure as U.S. equity mutual funds experienced outflows of (-$107) billion. ETFs also continue to take market share in the taxable bond category attracting (+$56 billion) in flows compared to (-$30) billion in outflows for taxable bond mutual funds.

In 2015, there were 277 new U.S. ETF listings but 99 fund closures bringing the YE fund total to 1,840. There was less concentration of fund flows among the top 3 providers as they accounted for $156 billion or 66% of fund flows. This compares to 80% during the prior year. Achieving $100 million in AUM within two years of listing is an accepted measure of initial success attributed to new product listings.

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