ETF assets near $10 billion after second year of record growth

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Over $1 billion in new cash poured into the exchange-traded fund industry in 2021, with Equity-focused ETFs attract strong inflows into the final weeks of the year even as concerns about the Omicron coronavirus variant weighed on investor confidence.

Global net inflows into ETFs (funds and products) reached $1.14 billion at the end of November, compared with a record annualized $762.8 billion collected in all of 2020, according to ETFGI, a data consulting firm based in London.

The inflows brought global ETF assets under management to $9.92 billion at the end of the month, meaning that number is likely to surge past the $10 billion mark for the first time in December.

December has traditionally provided some of the strongest months on record for new business for ETF providers, especially as the US stock market has regroup at the end of the year.

“As well as record inflows for ETFs listed in both the US and Europe, we have seen record inflows in newer categories such as actively managed ETFs and with environment, society and governance [ESG] ETF. These are promising areas for future growth as ETFs penetrate deeper into financial markets around the world,” said Deborah Fuhr, founder of ETFGI.

Actively managed ETFs registered a net inflow of $126 billion in the first 11 months of 2021, compared with $91.1 billion collected last year. New business for ESG-focused ETFs has hit $146.8 billion after a record $86.9 billion in annual sales in 2020.

BlackRock, the world’s largest asset manager, forecasts that global ETF assets will hit $15 billion by the end of 2025 at the earliest.

Salim Ramji, global head of iShares and index investing at BlackRock, said the growth of commission-free trading for ETFs on digital investment platforms has driven ETF adoption.

“Hundreds of millions of people globally can now access ETFs for free on major investment platforms in more than a dozen countries, often with just a few taps on their smartphones,” said Ramji.

Interest in ETFs has grown rapidly since late March 2020 after the chaos caused by the coronavirus pandemic forced the Federal Reserve and other leading central banks to inject liquidity into the market. financial markets through massive asset-purchase programs.

Extraordinary supportive measures by the Fed and strong recovery in US corporate earnings as lockdown measures are eased encouraged More investors use ETFs.

US Domestic Equity ETF registered capital inflows of around $538 billion since the market hit a March 2020 low, helping propel the S&P 500 rally to an all-time high in early December.

Not all observers welcome the change to the ETF. Michael Green, chief strategist at Simplify Asset Management, said the massive scaling of assets held in index-tracking ETFs is creating problems by pushing up values, increasing the relationship correlation between individual stocks and distort returns on the US stock market.

He warned that the risks of “extreme negative outcomes” were growing as investors continued to pour money into the US stock market through ETFs.

Vanguard, the world’s second-largest asset manager, warns that the US stock market has not been overvalued since the “dotcom” bubble in the early 2000s.

They expect US equity valuations to moderate as interest rates rise in response to inflationary pressures and US corporate earnings growth slows. As a result, Vanguard forecasts that annual returns in US equities over the next decade will fall between 2.3% and 4.3%.

“This pales in comparison to 10.6% annualized returns. [for US equities] Joseph Davis, chief global economist at Vanguard, said.

In contrast, Michael Arone, chief investment strategist for State Street’s ETF business in the US, said that Wall Street’s bull market fundamentals will “remain strong” in 2022.

The Wall Street consensus forecast for S&P 500 earnings growth in 2022 currently runs at around 8%. “If actual earnings are close to those projections, it could be enough to push US equities higher,” Arone said.

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