Exchange-traded fund flows smash full-year record

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Investors have poured record amounts into exchange-traded funds this year, even before the buying spree sparked by the election of Donald Trump as US president.

As of October 31, global net inflows into the booming ETF industry reached $1.4 trillion, according to data from BlackRock, surpassing the all-year 2021 record of $1.33 trillion.

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Barring a sharp turnaround, final net inflows for the full year look set to be higher, after a US$22.2 billion injection into US-listed ETFs last Wednesday, the day after the election, according to State Street Global Advisors (SSGA). . ), breaking the previous post-election day record of $4.9 billion in 2020.

“It’s on track to be a record year,” said Karim Chedid, head of investment strategy for BlackRock’s iShares in the EMEA region.Europe, Middle East and Africa)After flows in October reached $188 billion, the second highest number ever, preceded only by $199 billion in July, despite the decline of many stock and bond indices during the month.

“Even as inflows reached record levels, total assets (ETF) on a monthly basis fell slightly, from $13.5 trillion to $13.3 trillion, due to moderately negative October returns across most Morningstar Categories. Inc., whose data does not include funds listed in China or India.

Appetite for fixed-income ETFs has been particularly strong this year, with net inflows reaching $376 billion, ahead of the previous record of $331 billion last year, according to BlackRock figures.

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Shadeed believes the buying spree was driven by a desire to secure higher returns while they were still available, given the prevailing trend of monetary easing in most major economies.

In October, there was unusually strong demand for European-listed high-yield bond ETFs, with net buying of US$2.1 billion the second highest figure on record.

“High yields accounted for the lion’s share of credit flows, with much of it in European high yields,” Shadid said, and attributed the enthusiasm to the release of economic data in Europe that indicated “moderate growth,” which is seen as “moderate growth.” “Just right” from a high-yield bond perspective.

Commodity ETFs are also on track to add to their full-year 2024 balance, thanks to a recent improvement in sentiment as the price of gold accelerates to all-time highs. October’s net inflows of US$6.4 billion into the broad commodities pool mean that the asset class is now in the black in terms of year-to-date flows, at US$5.4 billion.

If this trend continues, commodity ETFs will have their first positive year since 2020, after seeing combined outflows of $28.4 billion from 2021-2023.

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However, the bulk of inflows so far this year have been absorbed by stock ETFs, which have withdrawn $927 billion.

US equity funds, with inflows of $75.5 billion, accounted for the bulk of the money as usual in October, but emerging markets withdrew $29.4 billion, thanks to the stimulus measures taken by the central bank, which sparked a rally in the declining Chinese stock market.

“It was a record month for equity flows in Greater China,” Flood said. “The October amount of US$11.7 billion (from ETFs listed outside China) is more than double the previous monthly figure of US$4.9 billion in June 2022.”

The iShares China Large-Cap ETF raised $5.5 billion, the third-highest balance of any ETF in the world in October, according to Morningstar, ahead of the SPDR S&P 500 ETF Trust, the world’s largest ETF, and behind Vanguard’s only. iShares S&P 500 Trackers.

This allowed 20-year-old FXI, the 317th largest ETF in the world, to double its assets to $9.9 billion in one month. The 11-year-old Xtrackers Harvest CSI 300 China A-Shares ETF was another fund that doubled in size during October, Flood said.

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Looking just at U.S.-listed ETFs, Matthew Bartolini, head of Americas ETF research at SSGA, said three-month China-focused ETF inflows were the worst on record at the end of the summer. However, after $3 billion in the last week of September and $10 billion in October following the stimulus announcement, the three-month time series has bounced off its lows, an underestimation given that inflows of three Months are now more than double their previous peak in 2021.

“The higher jump was driven by exuberance and a significant amount of short covering, as short interest in China ETFs at the end of the summer rose significantly,” Bartolini added.

Bartolini said the enthusiasm did not extend to other emerging markets, as China accounted for 104 percent of all single-country ETF inflows in emerging markets in October, meaning single-country funds covering the rest of the developing world suffered outflows, in 2018. Total.

Shadid wasn’t sure whether this year’s record is a sign that ETF inflows will continue to accelerate.

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While he said “the ETF adoption story remains structurally positive,” with ETFs taking market share from more traditional mutual funds, he believes buying this year has been stimulated by strong market returns, which is Something that won’t happen every year.

“There is a market momentum factor behind it. We have seen double-digit returns for US stocks for a second year as we continue to recover from 2022 (and) increasingly, it is US stocks that have led a lot of the flows,” Shadid said.

With the current US earnings season comfortably beating relatively subdued expectations, he added, “I think that’s ultimately the driver of strong flows.”

However, Flood was more confident in a repeat of the “preference glut” seen in October, especially after Trump won the election.

“With Trump coming, it definitely looks like the economy will be business-friendly, just like 2017,” he added.

“Despite concerns that S&P 500 returns are dominated by larger companies, there is more money going there than ever before. There is an ‘if you can’t beat ’em, join ’em’ attitude in this regard.”

© 2024 Financial Times Limited

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