The global exchange-traded funds (ETFs) sector has hit a new milestone after recording inflows of over $1 trillion for the first time in 2021.
According to data provided by Morningstar and obtained by the Wall Street Journal, the inflows surpassed last year’s total of $735.7 billion. The new capital entering the space pushed the ETF assets under management to about $9.5 trillion.
The inflow was mainly concentrated on low-cost U.S. ETFs tracking indexes managed by Vanguard Group, BlackRock, and State Street Corp. Notably, the firms account for over three-quarters of U.S. ETF assets.
Overall, ETFs have been an attractive vehicle for investors in 2021 over several benefits that come with the investment vehicle. The funds have offered a convenient way for investors to get involved in the stock market following the crash initiated by the coronavirus pandemic.
Rich Powers, the head of ETF and index product management at Vanguard, explained some of the drivers for the significant inflows on several funds.
“You have this historical precedent where you have tumultuous equity markets, and more and more investors have made their way to index products,” said Powers.
Data on ETF inflows also correlates with Finbold’s previous report that indicated that net inflows into inflation-protected bond ETFs as of August 8, 2021, hit $27 billion globally. The figure was almost double compared to the $16.45 billion net inflows registered in 2020.
At the same time, our previous research indicated that the value of assets under management by the ten largest ETFs surged 47.56% between March 2020 and April 2021, from $1.14 trillion to $1.69 trillion, adding $546.63 billion over the 12 months period.
Drivers for ETF sector’s growth
ETF growth and returns can be linked to attractive tax efficiency, cost, liquidity, and transparency. Generally, the ETFs for various sectors have recorded high returns despite the market experiencing volatility. For instance, our research shows that the top three best performing ETFs in the real estate sector recorded average returns of 45.69% between January 1, 2021, and June 2, 2021.
It is worth mentioning that the ETF market was recently impacted by the fear emanating from the Covid-19 omicron variant. As reported by Finbold, at some point, the ETF market traded in the red as the entire market experienced volatility following the fears of the new strain.
The drop was coupled with a roller-coaster for stocks that emerged in November, consequently impacting ETFs that track them.