Industry Updates

Smart beta central to ETF creation story

Scott Longley

a body of water with a mountain in the background

The growing popularity of smart beta investment lies behind the bounce-back seen in the figures for ETF new issues in November, according to figures from analysts at Societe Generale (SG).

The regular insight from SG's Market Signals research shows that US- and European-listed ETFs posted $48bn of net new assets in November compared with relatively light inflows of $6bn in October. The $48bn represented the highest level of net new assets for a year.

Of the total, equity ETFs represented $31bn of net new assets as investors renewed their enthusiasm for riskier asset classes despite turbulence in financial markets. This compares with the long-term monthly average of $24bn.

In fixed income, a small outflow of $0.3bn in October was also reversed with net creations hitting $16bn which SG ascribed mainly to sovereign and emerging market bond indexations.

Styling it out

A majority of the equity net creations came from factor and style indexations, which overtook broad regional and national benchmarks. In total, over the 12 months to November, factor and style ETF net creations accounted for 40% of all total net inflows for equity ETFs of over $100bn.

By region, unsurprisingly the US was the most in favour with $8.1bn of new asset creation, followed by merging markets with $6.6bn. However, as SG put it the "exit from European indexations continued to gather pace in November" with a net outflow of $2.4bn.

In its further breakdown, SG said that the rotation out of cyclicals that had been observed in October gathered pace in November. The research cites the $2.1bn outflow on IT and the $1.6bn outflow on financials while consumer staples and healthcare both saw an inflow of $0.8bn respectively.

Notably, SG said that ESG and SRI ETFs enjoyed a lower level of interest than in November.

Return of value

An indication that value factors are back in favour comes from the analysis of which factors and styles accounted for the inflows. The SG report suggests that value posted the bulk of the inflows (at $4.9bn in net new creations) followed by yield at $3.7bn. Low volatility indexation inflows of $3.1bn reached a three-year high.

While there was some small net new creation in growth and small cap, the data still suggest that investors certainly believe a new stage in the cycle has been reached or passed.

New launches

The SG team noted that of the five factor-based new ETF launches in November four were internet-themed. These were, in the US, First Trust's Dow Jones International Internet ETF, the Global X E-Commerce ETF and the TigerShares China-U.S. Internet Titans ETF while in Europe KraneShares launched the CSI China Internet UCITS ETF domiciled in Ireland.

New launched breakdown:

  • 20 ETFs domiciled in US

  • 9 ETFs domiciled in Europe

  • 21 ETFs on equity

  • 5 focused in factor indexations

  • 4 on internet-themed exposures

  • 8 focused on fixed-income

  • 3 focused on municipals

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