Exchange traded funds saw record inflows in the first quarter of the year as investors continued to jump on the extended equity market rally, despite concerns of high valuations, and more turned to the cheap and efficient ETF investment vehicle.
Global investors funneled $197.3 billion in ETFs over the first three months of the year, a quarterly record, according to ETFGI data. The record comes off another record after ETFs gathered the highest ever annual inflow of $390.4 billion in new cash over 2016, reports Chris Flood for the Financial Times.
Robert Buckland, a strategist at Citigroup, argued that the surge in ETF flows was a “seismic shift,” driven by “a profound re-assessment” among investors about the fees they were prepared to pay asset managers to put money to work.
At the beginning of every year, investors tend to re-evaluate holdings, consider tax consequences and make changes to their portfolios for the year ahead. Consequently, more are reconsidering their high-cost actively managed fund options, which has been an ongoing theme in the investment world, in favor of cheap, passive index-based ETFs.
For example, Orange County Employees Retirement System, a $14 billion California-based public pension scheme, recently announced it would cut allocations to active equity managers to save on costs.
Buckland has pointed out that active managers charging high fees and earned mediocre returns were being “brought down to earth” by low-cost passive funds.
“Forty per cent profit margins are hard to defend in an industry where barriers to entry are low and there are low-cost disrupters on the prowl,” Buckland said.
Due to the ongoing shift in investment sentiment, actively managed equity funds experienced net global outflows of about $523 billion over the past year, whereas passive equity funds attracted $434 billion in inflows.
For more information on the ETF industry, visit our ETF performance reports category.