The exchange traded fund industry has enjoyed another phenomenal year as investors piled into ETFs to ride out the 2017 bull market.
There are 2,113 U.S.-listed exchange traded products, which include both ETFs and exchange traded notes from 123 fund providers across four exchanges with $3.447 billion in assets under management after attracting $473.9 billion in net inflows, according to XTF data. The ETF industry also launched 273 new funds this year, but 136 were delisted and lost to the sands of time.
Among the most popular ETF options this year, iShares Core S&P 500 ETF (NYSEARCA: IVV) attracted $30.2 billion in net inflows, and similarly, the fifth most popular ETF trade was the Vanguard 500 Index (NYSEARCA: VOO), which saw $14.7 billion in net inflows.
Along with an uptick in demand for U.S. equities to ride out the ninth year of our bull market, investors also looked into international equity options to diversify and capitalize on relatively cheaper valuations, especially with U.S. markets looking pricier and valuations elevated in the extended bull run. For example, the iShares Core MSCI EAFE ETF (BATS: IEFA) attracted $20.9 billion in net inflows and the Vanguard FTSE Developed Markets ETF (NYSEARCA: VEA) saw $17.5 billion in inflows. Additionally, the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) experienced $16.6 billion in inflows and is now the second largest emerging market-related ETF on the market.
Looking at the top performing ETFs of the year, most outperformers were related to technology stocks as the 2017 rally was fueled by growth-oriented plays, along with a lone rare earth metals-related ETF.
Year-to-date, the ARK Innovation Fund (NYSEArca: ARKK) and ARK Web x.0 ETF (NYSEArca: ARKW) were the top two best performing, non-leveraged, long-only ETFs, surging 89.2% and 87.7%, respectively. ARK’s actively managed ETFs, which have outperformed the broader markets since inception, try to generate long-term capital appreciation and outperformance with a relatively low correlation to traditional investment strategies by investing exclusively in disruptive innovation – companies that rely on or benefit from the development of new products or services, technological improvements and advancements in scientific research relating to the Genomic Revolution, so-called Web x.0 and Industrial Innovation.
The VanEck Vectors Rare Earth/Strategic Metals ETF (REMX) jumped 83.4%. The rare earth metals ETF has enjoyed a phenomenal year and strengthening fundamentals may continue to support this sector. Demand for rare earth metals is on the rise as technological advancements and global consumers’ increased reliance on high-tech gadgets have fueled demand. Furthermore, the sub-sector strengthened after China started stockpiling rare earth metals for strategic reserves, raising concerns over Beijing’s control over the coveted resources.
The WisdomTree China Ex State Owned Enterprises Fund (NasdaqGM: CXSE) was the best performing China ETF this year, gaining 80.2%. CXSE tracks companies that are not state-owned enterprises, which means that it does not hold some of the large Chinese banks that make up a sizeable portion of the overall Chinese market capitalization. Consequently, information technology accounts for 33.4% of the fund’s portfolio, followed by consumer discretionary 22.6% – two sectors that have capitalized on the growth of e-commerce in China.
Along with the broader CXSE play, more sector-focused China ETF Guggenheim China Technology ETF (NYSEArca: CQQQ) also rallied 74.0% this year. China has been a world leader in the online commercial retail space as it draws upon its large group domestic consumers and rising middle-income base. Consequently, a China tech-related ETF has been among the best performers over the past five years and may continue to lead.