Global investors funneled over $100 billion into exchange traded funds in January, a record monthly inflow that brought total ETF assets under management around the world above $5 trillion for the first time ever.
Following four consecutive years of record breaking inflows into the ETF investment vehicle, the global ETF industry enjoyed another record month in January, the Financial Times reports.
The rapid growth of low-cost, index-based ETFs has been fueled by growing discontent with high fees and underperformance of traditional actively managed open-end mutual funds.
The shift in investment sentiment has also forced some traditional money managers to pursue acquisitions in the ETF segment or even launch their own ETFs to defend their businesses.
In January, global net new inflows into ETFs and exchange traded notes hit $105.7 billion, according to ETFGI data. The total may be even higher once final numbers from the Australian ETF markets are updated.
“The ETF industry has passed the $5tn mark for assets far more quickly than almost anyone anticipated,” Deborah Fuhr, co-founder of ETFGI, told the Financial Times. “But ETFs represent only a small fraction of invested assets worldwide. We are still only in the early stages of ETF adoption in many regions and there is huge potential for further ETF growth in fixed income markets globally. Progress toward the $10tn milestone may also prove faster than currently expected if market conditions remain favorable.”
For instance, BlackRock, the world’s largest asset manager, alone brought in net inflows of just over $28 billion into its iShares ETF business in January, or up 46% for the same month year-over-year. Vanguard, the world’s second largest asset manager, saw inflows of over $11 billion in January, or down around 30% for the same month year-over-year.
Observers also pointed to the extended bull rally in equities as a major contributor to ETF demand, with the S&P 500 index touching an all-time high on January 26.
Despite the recent sell-off and drawdown in equity ETFs, BlackRock believed the correction provided “an opportunity to add risk to portfolios.” The asset manager said the US stock market pullback was “mainly driven by an unwinding of popular trades betting on low equity volatility.”
The selling may be sort lived and we may return to businesses as usual, with ETFs riding on the ongoing bullish sentiment.
“While volatility may persist in the very near term, we remain confident that the [equity]bull market remains intact,” Mark Haefele, global chief investment officer of UBS Wealth Management, told FT. “We may have moved from being ‘overdue’ for a pullback to approaching ‘overdone’ with this sell-off.”
For more information on the ETF industry, visit our ETF performance reports category.