As investors continue to pour into cheap passive index-based investments, the global exchange traded fund industry has broken above $4 trillion in assets under management.
According to ETFGI data, there are almost 7,000 exchange traded products, or ETFs and exchange traded notes, managed by 313 providers and total assets of $4.002 trillion as of the end of April, reports Robin Wigglesworth for the Financial Times.
As part of an ongoing theme, more investors have grown disillusioned with the high fees and underperformance of actively managed strategies, opting to shift assets out of the traditional open-end active mutual fund universe and into cheap, index-based ETFs. As of the end of March, there were $2.8 trillion in U.S.-listed ETFs and $16.9 trillion in U.S.-listed mutual funds, whereas the numbers were $2.1 trillion and $15.7 trillion, respectively, last year.
“The active asset management headwinds aren’t abating,” Ben Johnson, head of ETF research at Morningstar, told the Financial Times. “It’s not about performance any more. It’s structural.”
ETFs accumulated a record $37.94 billion in net inflows over April, the 39th consecutive month of net inflows, bringing this year’s total to $235.2 billion, compared to 2016’s inflows of $81 billion for the same period.
BlackRock’s iShares ETF line was among the biggest winners last month, adding new ETF inflows of $23.9 billion, followed by Vanguard’s $10.29 billion and Charles Schwab’s $2.53 billion.
The pace of inflows into ETFs does not seem to be letting up either. Sanford Bernstein, a research house owned by the asset manager AllianceBernstein, recently estimated that by January 2018, more than 50% of equity assets under management in the US will be passively managed, which will largely benefit the majority of the ETF industry as most popular options are passive index-based options.
The ongoing asset flow trend toward passive index-based funds comes despite a recent outperformance in actively managed strategies in the extended bull market. About 63% of so-called large-cap fund managers that invest in blue-chip U.S. companies in the S&P 500 managed to outperform their benchmarks in April, the best beat since February 2015 and the 25th best month of performance in the past 26 years.
“We are entering a period where things aligning nicely for active managers,” Brian Hogan, president of Fidelity’s equity group, told the FT in a recent interview. “We had a terrific first quarter. There’s more dispersion, less correlation … It’s just a great backdrop for active management.”
Nevertheless, investors remain wary of years of underperformance from active managers.
For more information on ETF industry flows, visit our ETF performance reports category.