With the first half of the year in the rear-view mirror, an analysis of year-to-date ETF flow data has revealed investors have an affinity for cheap ETFs, smart beta and fixed income.
David Mann, Head of Global ETF Capital Markets at Franklin Templeton, recently blogged about 2019 ETF flows and where investors are allocated in the first six months of the year.
He found 85% of all flows went into funds with management fees under 10bps.
“There is a growing group of investors who are index-agnostic and simply want exposure to a given asset class as cheaply as possible,” Mann wrote. “That has been a growing trend borne out by recent ETF flows, and it is one of the biggest factors behind the launch of our passive suite of funds.”
Mann’s research revealed that 75% of all equity flows went into smart beta ETFs.
He said this percentage of equity assets flowing into smart beta was happening because investors have acknowledged that there are other index rules besides letting market price determine the weight of the stock.
“I had predicted inflows into smart beta ETFs would reach $100 billion this year, and although we don’t seem to be at a pace to hit it, I think the percentage of equity assets flowing into smart beta is very impressive,” he said. “As to why this is happening, a couple possibilities come to mind. The first is that investors have acknowledged there are other index rules besides simply letting market price determine the weight of the stock. The second is that many of these smart beta funds have performed very well over the past few market cycles.”
Finally, Mann found 62% of all flows went into fixed income ETFs, which he said was no surprise given the ongoing attention on what the Federal Reserve will do with interest rates.
“I think it is only a matter of time before all three of these trends collide, and investors start gravitating to both active and smart beta fixed income funds,” he concluded.
You can read the full blog here.