The stock market has been outperforming for the past decade following the financial crisis, but according to Vanguard’s chief investment officer, Greg Davis, don’t expect history to repeat itself for the next 10 years.
“If we look forward for the next 10 years, our expectations around U.S. equity markets is for about a 5 percent median annualized return,” said Davis. “Five years ago, we’d have been somewhere in around 8 percent.”
“Our expectations have clearly come down,” Davis added.
Historically, the stock market has been able to average an inflation-adjusted annualized return of close to 7 percent.
The comments by Davis come as The Inside ETFs conference in Hollywood, Florida is underway. Over 2,300 financial advisors, institutional investors, hedge funds, and more are discussing the latest and greatest in the ever-growing exchange-traded fund space.
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Investors Focusing on Price
As the ETF industry’s thought leaders gathered during the second day of the conference, the Dow Jones Industrial Average closed down about 50 points, while the S&P 500 and Nasdaq Composite posted paltry gains. Inside the conference, one key trend identified is investors’ fixation on price.
Even with a December 2018 to forget, ETFs continued to amass assets to the tune of over $51 billion while mutual fund flows suffered. Mutual funds, bond and equity funds, in December lost a record $152 billion.
One would assume that outflows from U.S. equities in 2018 would also be evident in ETFs that have been purchasing the downtrodden shares in the three major indexes. However, that hasn’t been the case as ETFs received $314 billion worth of inflows despite a challenging 2018–a drop from the $466 billion the previous year, but given the challenges of 2018, an impressive figure nonetheless.
The capital flows into ETFs are continuing thus far in 2019 as data from XTF.com shows that ETF assets have risen by 7 percent year-to-date or $237 billion.
The primary motivator for investors in 2019 has been price. Regardless of whether an ETF uses an active or passive strategy, investors are seeking out low-cost solutions.
“In December, we saw $50 billion of new assets coming into ETFs when $120 billion came out of mutual funds,” said ETF Trends CEO Tom Lydon. “So people are continuing to be more comfortable with ETFs–more money going into the factor strategies and multi-factor strategies as opposed to pure beta, low-cost cap-weighted strategies.”
“It’s all price,” added Lydon.
For more market trends, visit ETF Trends.