ETFs continued their meteoric rise this year with assets passing the $1trn mark despite the major headwind that has been the coronavirus.

According to data from Morningstar, ETFs in Europe have seen €75.5bn inflows so far this year, as at the end of November, slightly down from the record €100bn seen in 2019.

The past 12 months can certainly be described as a year of two halves. In H1, the market saw record volatility resulting from the rapid spread of coronavirus throughout the globe, however, following the quick response of central banks, economies have been able to recover somewhat in H2.

For the ETF ecosystem specifically, liquidity has been the key focus following the extreme volatility especially in the fixed income space where many strategies saw all-time high discounts to net asset value (NAV).

However, environmental, social and governance (ESG) ETFs appeared unaffected and continued to see inflows even in March when ETFs in Europe witnessed record monthly outflows.

To sum up this fascinating year in the ETF space, ETF Stream’s deputy editor Tom Eckett has selected five stories that best highlight the year the industry has had.

1. What happens when the lights go out? An analysis of ETFs when liquidity vanishes

With ETFs trading at all-time high discounts during the March volatility, the industry was quick to highlight the price discovery role ETFs play in periods of market stress.

While it was certainly the case ETFs provided access to the underlying bonds, which were hardly trading, the large discounts, in fact, represented the liquidity premium that investors were prepared to pay during periods of market stress rather than showing shifts in fundamental value.

2. ETFs in Europe closing at record pace as issuers struggle to attract assets to new products

ETFs have shut at a record pace this year as investors continued to favour traditional market cap strategies while avoiding more esoteric areas of the ecosystem.

According to data from Bloomberg Intelligence, just under 33% of all existing ETFs in the US were launched in the past three years but they total approximately $2 of every $100 invested.

3. How historic market volatility changed oil ETPs forever

When oil started trading below $0 a barrel for the first time in history in April, a major structural issue was highlighted across many exchange-traded products tracking WTI prices.

As they were exposed to front-month futures contracts, this meant they ran the risk of seeing returns wiped out if WTI fell below $0 a barrel again.

As a result, ETF issuers and index providers have made significant changes to their strategies and now offer investors exposure to many different futures contracts across the curve.

4. Why ESG should not be marketed as delivering outperformance

ESG investing is the hottest trend in finance and in the ETF space this is no different with record launches and inflows this year.

ETF issuers continue to claim investors can invest sustainably and outperform at the same time which has certainly been the case since the Global Financial Crisis.

However, the outperformance is not driven by being "green" per se and instead due to factor and sector biases.

Therefore, marketing ESG ETFs from a performance perspective misses the point of sustainable investing and tells investors a story that is not necessarily true.

5. Next frontier for ETF issuers is China's bond market

China's $13trn bond market is full of untapped potential with index providers only just starting to include the country's bonds in their flagship global indices.

However, the investment case for Chinese bonds is becoming more clear with low correlations to other markets and promising yields.

With demand increasing, ETF issuers such as Goldman Sachs Asset Management and UBS Asset Management have started to launch strategies targeting this area of the market. Watch this space!