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New business for managers of exchange traded funds jumped by more than a third during 2020 with record net investor inflows pushing global ETF assets to an all-time high of $8tn in a tectonic shift that is ratcheting up competitive pressures across the investment industry globally.
Investors worldwide allocated $762.9bn into ETFs (funds and products) last year, up 34 per cent on the net inflows of $569bn registered in 2019, according to a preliminary data from ETFGI, a London-based consultancy.
Last year’s haul was also 16.6 per cent higher than the previous annual inflow record of $654bn set in 2017, a remarkable performance given the violent correction that battered stock markets in the first quarter as the coronavirus pandemic gathered pace across the world.
“No one could possibly have predicted back in March during the stock market correction that the ETF industry would end the year with record investor inflows and global ETF assets at a record $8tn. It is truly astonishing,” said Deborah Fuhr, the founder of ETFGI.
The surge in ETF inflows gathered pace last year after central banks slashed interest rates and provided massive doses of emergency liquidity to stabilise equity markets that had fallen sharply after lockdown measures plunged leading economies into recession.
Central banks’ aggressive monetary response also helped gold ETFs to collect record inflows of $44.9bn, pushing the price of the precious metal, which is widely seen as a haven in periods of turmoil, to above the $2,000 an ounce mark in August.
Investors have ploughed more than $4.6tn in new cash into ETFs since the global financial crisis amid mounting discontent with the disappointing performance and high fees of traditional active managers that try to pick winning stocks.
This shift has helped the ETF industry’s two leading players, BlackRock and Vanguard, to become the world’s largest asset management companies.
Pennsylvania-based Vanguard attracted ETF inflows of $206.6bn in 2020, a jump of 73.2 per cent on the $119.3bn gathered over the previous year. About $43bn of Vanguard’s ETF inflows last year came via an arrangement that allows clients to move an existing mutual fund holding into an ETF.
“ETFs have become the default vehicle for index-based investment strategies,” said Tim Buckley, the chief executive of Vanguard.
BlackRock’s iShares ETF unit registered inflows of $190.2bn last year, up 4.5 per cent on its 2019 total of $182bn.
“Record ETF inflows are a culmination of decades of innovation that have made investing easier, more affordable and more efficient for more people than ever,” said Salim Ramji, global head of iShares at BlackRock.
He pointed out that sustainable ETFs had gathered inflows of $85bn in 2020 compared with $28bn the previous year, reflecting the strong growth in investors interest in funds that employ robust environmental, social and governance standards.
“2020 can be heralded as the landmark year for sustainable ETF flows,” said Mr Ramji.
BlackRock and Vanguard together took more than half of the new business registered last year by the ETF industry, heaping pressure on rival managers. Their growing dominance has fuelled speculation that other players including Invesco, State Street, UBS and JPMorgan will have to pursue large acquisitions if they want to compete effectively against BlackRock and Vanguard.
State Street’s ETF unit attracted inflows of $40.2bn last year, up from $31.7bn in 2019. This represents another disappointing showing given that State Street runs SPY, the world’s largest equity ETF, as well as GLD, the biggest gold ETF.
Invesco’s ETF arm drew inflows of $25.5bn in 2020, an increase of 23.2 per cent on the $20.7bn registered the previous year.
The ETF unit at UBS suffered a disappointing year with inflows dropping 70 per cent to $4.8bn.
JPMorgan, a late entrant to the ETF industry, saw ETF inflows increase 17.5 per cent to $14.1bn last year while DWS, the asset manager owned by Deutsche Bank, gathered ETF inflows of $18.4bn, a jump of 53.3 per cent on the $12bn registered in 2019, according to ETFGI.
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