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The first quarter of 2019 saw investors continue to preference investing via the ETF structure compared to traditional mutual funds, which continued to sustain net outflows. Fixed income was most definitely the flavour of the quarter, as investors moved to a decidedly risk-off position in their portfolios.
Within equities, North American exposures topped the charts, while, at a sector level, it was real estate that grew strongly as investors sought out high yield sectors to combat the lack of rate increases by the Fed. Financials and Technology ETFs were sold off, the first due to increased earnings pressure in the Banking industry and the latter due to profit taking as technology markets continued to rally.
The global ETF industry ended the first quarter of 2019 at a record high of US$5.4 trillion in assets under management (AUM), posting a strong quarterly growth rate of 12%.
BetaShares expects that in 2019 the global ETF industry will continue on a fast growth trajectory, in line with the average growth rate of 20% p.a. experienced in the last decade.
The full report is available for download, but I’ve captured some key highlights below.
ETFs vs. traditional mutual funds
The rapid growth of the ETF industry reflects continued investor preference for ETFs as an investment vehicle over traditional mutual funds, rather than necessarily a preference for passive over active investments.
In the U.S., for example, combined passive and active ETF net inflows were ~US$52 billion in Q1 2019. By contrast, passive managed funds saw net outflows of ~US$15 billion, which along with large net outflows in active managed funds (US$26 billion) took total managed fund outflows in Q1 to US$41 billion.
While the Australian ETF industry has not yet seen such a clear divergence in flows, Australian ETFs are nonetheless outgrowing their traditional managed fund counterparts. For example, according to Plan For Life, the $900 billion Australian retail managed funds sector received net inflows of $5B in 2018. By comparison, the far smaller ~$40B Australian ETF industry’s 2018 net inflows were ~$6.2B.
US Flows by Structure (Equities) – Q1 2019 ($m)
Global ETF flows by asset class: favouring fixed income
Investors flocked into fixed income in Q1 2019 at the expense of equities, reflecting a clear risk-off sentiment, and despite strong performance in many global share markets.
This trend is not confined to the U.S., with the European ETF market seeing record net inflows into fixed income ETPs of more than ~€14 billion.
The interest in fixed income was mirrored in Australia in the first quarter of the year, with the category receiving very strong support from local investors with over A$500m of net inflows in the period. Within the BetaShares Fixed Income & Hybrid Suite, strong flows, in particular, were recorded in the Hybrid Active ETF (HBRD), the Australian Senior Bank Floating Rate Bond ETF (QPON) and the Australian Investment Grade Corporate Bond ETF (CRED).
Spotlight: Cannabis ETFs
In this quarter’s spotlight, we focus on the remarkable growth in the rather small number of Cannabis ETFs, which have quite literally exploded in size since their relatively recent introduction.
The first Cannabis ETF was introduced in Canada in the middle of 2017, with the first U.S. listed product commencing trading in February 2018.
Since the beginning of 2018, the cumulative flows into the handful of these Cannabis products has reached >U.S.$1.5B and the interest from investors shows no sign of slowing as the industry becomes increasingly legitimised by regulatory approvals around the world – definitely one to watch!
Cannabis ETF Fund Flows (US $m)
Download the full Q1 2019: Global ETF Review to read more. The Global ETF Review is published each quarter and accompanies the monthly BetaShares Australian ETF Review which focuses on the local ETF industry. The next scheduled publication date in early July.