The ETF wrapper has demonstrated its popularity once again by crushing the previous annual record for new asset flows in only the first eight months of 2021.
By the end of the first half, Europe-listed ETFs had already seen $109bn inflows, according to Bloomberg Intelligence, almost on a par with all new money collected in 2020.
However, by the end of August this number had soared to $136bn, Bloomberg Intelligence said, comfortably ahead of the $120bn record annual flows seen in 2019 – and with approximately 16 weeks of trading left to extend this impressive figure.
Athanasios Psarofagis, ETF analyst at Bloomberg Intelligence, said: “The record setting flows shows real fungibility in the wrapper, and that this is not just a US occurrence.
“Increasingly investors are seeing the benefits of ETFs and the flows are also coinciding with an increase in trading volumes as well which to me shows more tactical usage of the product.”
Psarofagis added the ETF industry has also benefitted from being at the forefront of innovative investing movements such as thematics and environmental, social and governance (ESG).
Cosmo Elms, head of ETF business development at Legal & General Investment Management (LGIM), which have their own suite of thematic products, noted the thematic ETF market has grown from $16bn at the end of H1 2020 to $45.7bn at the end of August this year, almost trebling in little over a year.
“The thematic ETF market has also evolved over this period with many investors adopting global thematic exposure as part of a changing approach to asset allocation, moving away from traditional regional building blocks,” Elms continued. “We have also observed adoption of thematic ETFs across an increasingly broader set of client channels including pension funds and other institutions in Europe.”
Speaking on the impressive uptake of ESG products, Chris Mellor, head of EMEA ETF and commodity product management at Invesco, said 47% of all ETF flows in Europe so far this year have gone into the product class, with some of the firm’s most popular exposures being ESG-screened renditions of their core product range.
Brett Pybus, head of iShares EMEA investment and product strategy added since March 2020, assets focused on sustainable investing through ETFs have quadrupled.
ETFs have also benefitted from investors using the wrapper as a means of expressing their positive convictions about the COVID-19 recovery, as illustrated by 75% of new assets going into equity strategies. Also, having lost some of their sheen in recent years, factor plays such as value and small cap ETFs have regained favour since before the turn of the year while Mellor highlighted a return in appetite for broad commodity baskets.
Looking ahead, Elms said he expects the ETF to continue acting as a vehicle of choice for asset managers looking to launch new and innovative products.
“Some asset managers are leading from the front when it comes to product innovation, identifying important gaps in the market and providing investors with solutions that go beyond the current standards and expectations across much of the market.
“ETFs are also considered an increasingly accessible, pooled, UCITS vehicle and the investment fund of choice for a very diverse range of investors; from individuals in their savings plans right through to some of the most sophisticated asset owners in the world.”
In a similar vein of thought, Pybus also noted: "The adoption of ETFs in multi-asset portfolios by retail investors, in part through digital wealth offerings such as online savings plans in countries like Germany which is expected to expand across other markets as well."
Aside from new developments, Mellor concluded the record flows are the natural progression of a multi-year trend as more participants become cognisant of the advantages offered by wrapped products.
“We believe that it is driven by a number of factors that continue to remain supportive: the simplicity and transparency of the ETF wrapper allows investors to control their investment decisions, typically low management fees and easy access with on exchange and OTC trading, and a broad range of exposures.”