Global ETF boom continues with record inflows in first half of the year
Global exchange traded funds (ETFs) attracted record inflows in the first six months of 2021, as investors poured in amid low interest rates, an equities rally and “cheap money” lending.
Investors worldwide ploughed $639.8bn into ETFs between January and June, a half year record and more than double that of the same period last year, according to Refinitiv data.
As asset prices recover from the pandemic lows last year, asset managers are increasingly using ETFs to build portfolios – sometimes in the place of individual securities.
The majority – 76 per cent – of these inflows went into equity ETFs, which received $490.65bn from investors. Bond ETFs, meanwhile, secured $136.6bn in investment.
ETFs in the US attracted the lion’s share of inflows, with inflows reaching $469.3bn. European ETFs came in second with $106.8bn, followed by those in Asia which attracted $38.3bn.
The development of Covid vaccines “opened the floodgates” to investors who were looking to put the cash they’d been sitting on during the pandemic to work and benefit from rising equity markets.
And they flooded to ETFs, which are “nimble, easy to use and thus an ideal instrument to very swiftly lock in positions in any given market at the touch of a button,” said Jose Garcia Zarate, an associate director at Morningstar.
Just today, BNY Mellon, which launched its first ultra-low-cost ETFs last year, announced that its ETF will be an international equity product, in response to strong demand and “product gaps” in global equities, the FT reported.
A shield against intervention
Fund management giants like BlackRock and Invesco have also piled into the less interest rate sensitive ETF market, adding to the second quarter mood music suggesting investors began thinking that a central bank intervention may be on the horizon.
“Inflation has already reared its ugly head, and if the expectations for a massive economic rebound are fulfilled, then the risk is that the likes of the Fed, BoE, etc may have to intervene to cool things down a bit sooner than they’re currently signalling,” Zarate said.
In response, investors are pre-empting and protecting their portfolios from that risk, which explains the solid flows pouring into inflation-protection bonds and ultrashort bond strategies that provide a shield against higher rates.
“Can this be maintained going forwards? The wind continues to blow in favour of low-cost investments such as ETFs, and the more investors use them and get familiarised with them, the higher the chances of sticking with them for the long haul,” Zarate said.