For the first time ever, annual global net inflows to exchange-traded funds (ETFs) exceeded $ 1,000 billion in 2021, and that milestone was reached in November. This brought total global assets invested in ETFs to nearly $ 9.5 trillion, more than double their value at the end of 2018. In 2020, global inflows for the full year were $ 735.7 billion, according to data compiled by investment research firm Morningstar Inc.
ETFs which are low-cost, passively managed investment vehicles that track US stock indexes accounted for the bulk of this influx, especially ETFs sponsored by the Vanguard Group, BlackRock, Inc. (BLK) and State. Street Corp. (STT). These three giant ETF sponsors collectively control over 75% of US ETF assets.
Key points to remember
- ETFs have recorded global net inflows of over $ 1 trillion to date through November 2021.
- This is the first time that they have crossed this milestone.
- Most of these flows were invested in ETFs listing US stock indices.
- Vanguard, BlackRock and State Street are the main beneficiaries of this increase.
Analysts say the rise in equity markets – with a gain of over 25% for the S&P 500 index so far in 2021 – coupled with a limited menu of investment alternatives offering higher returns at risk reasonable prices have stimulated investor interest in these ETFs. “You have this historical precedent where you have tumultuous stock markets, and more and more investors have moved into index products,” observed Rich Powers, manager of ETFs and index products at Vanguard.
More generally, ETFs, in particular passive funds using market indices, have proven to be attractive in terms of cost, liquidity and transparency. In addition, ETFs linked to various sectors have achieved high returns despite market volatility.
Additionally, with rising inflation, ETFs that hold inflation-protected bonds are enjoying renewed investor interest, even though they still represent a small proportion of total inflows. For all of 2020, these ETFs recorded global net inflows of $ 16.45 billion, but the cumulative figure for the year as of August 8, 2021 was over $ 27 billion. If this pace continues for the remainder of 2021, inflation-protected bond ETFs will earn about three times as much as in 2020.