High Dimension

Global market turmoil slows ETF industry growth

New business for exchange-traded fund providers fell nearly 30% in the first six months of the year as stock and bond markets fell due to soaring inflation and rising prices. interest rate.

Global net inflows into ETFs reached $463.8 billion in the first half of 2022, down 29.6% from the same period last year, according to ETFGI, a London-based consultancy.

Deborah Fuhr, founder of ETFGI, said “the dismal performance of equity and bond markets in the first half of the year, the Russian-Ukrainian war and China’s zero Covid policy” had also weighed on the ETF industry. Declines in stocks and bonds this year have eclipsed capital inflows, pushing global ETF assets to $8.6 billion from $10.3 billion at the end of December.

But Fuhr noted that ETFs as a whole have so far attracted more new business than they did over the same period in 2019 and 2020, a sign of the broader shift from traditional fund styles. products traded on the stock exchange.

Vanguard holds a narrow lead over rival BlackRock halfway through the 2022 race among exchange-traded fund providers to generate new business. Pennsylvania-based Vanguard garnered $118.6 billion in ETF inflows in the first six months of the year, down 37% from the same period last year. BlackRock saw ETF inflows of $109 billion, down 29.6% from the first half of 2021.

The duo have fought an uphill battle over the past decade using aggressive ETF fee cuts to entice investors, a duel that is driving change across the investment industry as rival managers are forced to adapt their business models in response to increasing competitive pressures.

The slowdown was most pronounced for State Street Global Advisors, the world’s third-largest ETF provider ranked by asset. ETF inflows for State Street fell 80% to just $8.8 billion.

The sharp reduction in risk taking among investors this year has added a new dimension to competitive pressures in the ETF industry after a decade in which strong gains for equity markets have boosted asset growth.

Matthew Bartolini, head of SPDR Americas research at State Street Global Advisors, said investor risk reduction was particularly evident in US sector ETFs which are widely used to make tactical bets by financial advisers and managers. of heritage.

ETFs linked to defensive sectors – where earnings are considered less vulnerable to an economic slowdown or recession – saw positive inflows in the first half. Healthcare ETFs brought in inflows of $9.1 billion, while consumer staples ETFs attracted inflows of $5.6 billion and utilities ETFs attracted $2.5 billion of dollars.

Conversely, ETFs linked to cyclical sectors posted outflows, with investors withdrawing $7.3bn from consumer discretionary ETFs and $7.3bn from industrial ETFs. US financial ETFs also saw large outflows of $12.7 billion in the first half of 2022.

Reductions in risk appetite were also seen in bond ETF flows. Investors withdrew $15.8 billion from high-yield U.S. ETFs, which hold junk corporate bonds, in the first six months of the year, as well as $1.1 billion from bond ETFs emerging markets. Short-term US government bond ETFs, the safest corner of the bond markets, generated inflows of $60.6 billion in the first half.

“High-yield capital outflows were the worst ever [for that sector] for any recorded semester,” Bartolini said.