BlackRock, the world’s largest asset manager and parent of ETF giant iShares, has released its latest ETP Landscape Report, which details trends in the global ETP Industry. The report is summarized below. All flows are global and all data is through December 31, 2013.
Global exchange-traded product (ETP) flows accelerated in December to $24.7 billion, following the US Federal Reserve’s decision to begin trimming its $85 billion monthly bond-buying programme. This removed market uncertainty and equity ETPs responded, bringing in the bulk of the inflows for the month at $28.9 billion – entirely from developed markets.
(Source: BlackRock ETP Landscape)
Full-year equity ETP flows set an all-time record at $247.3 billion overtaking 2008, which was the only other year they exceeded $200 billion. US exposures gathered $147.8 billion in 2013, followed by Japanese exposures with $38.2 billion. Pan-European funds surged in the second half of the year and finished with $26.7 billion, more than double the total in 2012.
Total 2013 flows of $235.5 billion surpassed $200 billion for the second consecutive year, underscoring the industry’s continued secular growth. The composition of flows shifted significantly in favour of equities versus 2012, illustrating how investors use ETPs to seek efficient, tailored access to varied investment exposures and for diversified buy-and-hold investments.
Fixed income flows of $27.5 billion, while lower than 2012, remained strong thanks to investors pouring $35.9 billion into short-duration ETPs.
Strategic beta equity – which BlackRock defines as non-market cap weighted equity ETPs – contributed a record $65.1 billion of inflows in 2013, led by dividend-weighted ETPs with inflows of $29.0 billion, and nearly double the $34.2 billion from last year. Minimum Volatility ETPs also grew rapidly with assets more than doubling to $13.2 billion. These products seek to smooth out the market’s peaks and valleys in part by holding stocks that have exhibited less price volatility, capitalizing on investor’s desire to manage volatility.
Gold ETP outflows of ($40.1 billion) in 2013 offset all inflows from the past three years combined, as the price of gold fell from its peak and investors turned to equities for more attractive returns. The SPDR Gold Shares ETF (GLD), the world’s largest gold ETP, endured more than $25 billion in outflows and was the worst performing ETP in terms of net flows.
Dodd Kittsley, Global Head of ETP Research for BlackRock, said: “Total 2013 flows of $235.5 billion surpassed $200 billion for the second consecutive year, propelled by record inflows of $257.7 billion from developed equity ETPs, as major developed equity indices tested historical highs this year.”
In addition to growing investor confidence, the ETP industry continued to benefit from the secular trend of greater adoption in 2013. ETP use in the capital markets continues to grow as investors seek efficient, tailored access to different exposures and look for diversified buy-and-hold instruments. ETPs compete against active mutual funds as well as equity and debt markets more broadly.
BlackRock estimates the size of the broader vanilla global investment landscape to be approximately $189 trillion including assets of $2.4 trillion from ETPs, $19.5 trillion from mutual funds (excluding money market funds), $62.1 trillion from the underlying equity markets and $104.9bn from the underlying bond markets. The growth of global ETP assets continues to outstrip that of mutual funds, but penetration of the broader investment landscape remains low at 1-2% with ample room to move higher. Increased Institutional adoption, growth of retail markets and continued industry innovation are all likely to spur increased penetration in the years ahead.
Kittsley commented: “ETPs continue to attract a broad base of global investors, driven by regional regulatory developments, deepening ETF liquidity, and increasing awareness among both retail and institutional clients of the benefits of ETPs. These efficient tools are being used by all types of investors – from capital market participants looking for liquidity, to pension clients seeking specialised exposures, to a growing segment of the market using ETFs as buy and hold investment vehicles.”