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As 2019 reaches its half-way point, we have seen a continued and marked preference by investors for passive strategies at the expense of actively managed strategies, along with an overall preference for investing via the ETF structure. Overall U.S. ETFs received ~US$56B of net inflows versus outflows in traditional managed funds of ~US$8.5B.
The global ETF industry ended the half year at a record high with assets under management of US$5.6T.
Fixed income has been by far the most popular asset class globally, with record flows into fixed income ETFs, as investors moved to a decidedly risk-off position in their portfolios.
Within equities, North American exposures have been by far the most popular region over the first 6 months of the year, while at a sector level, we saw the yield-oriented Utilities sector grow strongly. We also saw investors return to technology and financials sector exposures this quarter after selling them down in the previous quarter. By contrast, we saw massive outflows in health care sector exposures which appear to be a political hot potato in the U.S.
The full report is available for download, but I’ve captured some key highlights below.
ETFs vs. traditional mutual funds
This quarter showed a strikingly clear investor preference for passive investments, particularly passive ETFs, which in the U.S. market took in ~US$60B versus outflows in U.S. active mutual funds of ~US$14B.
That’s not to say that investors necessarily redeemed from all active funds, with Active ETFs actually showing net inflows of ~US$4.6B – cementing investor preference for ETFs as the investment structure of choice vs. traditional mutual funds.
US Flows by Structure (Equities) – Q2 2019 ($m)
Global ETF flows by asset class: What’s trending, what’s fading?
The global ETF industry ended the second quarter of 2019 at a record high of US$5.6T, with growth for the quarter of ~6%.
Investors continue to allocate heavily into fixed income. The asset class received even more absolute flows (US$39m) than the very strong flows in Q1 of US$34m. Equities flows increased somewhat but were still substantially lower than fixed income flows.
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 focus on fixed income was mirrored across all major ETF markets including Australia, with the fixed income category being the number one category for flows for the first time ever YTD – receiving some A$1.4B of net flows and beating out the ever-popular international equities category for the first time. Within the BetaShares Fixed Income and Hybrid Suite, strong flows, in particular, were recorded in the Hybrid Active ETF (HBRD), the Australian Investment Grade Corporate Bond ETF (CRED) and the Australian Senior Bank Floating Rate Bond ETF (QPON)
Spotlight: Gold ETFs
In this quarter’s spotlight, we focus on the recent flows into gold ETFs – which are being bought up as investors seek out ‘safe haven’ assets and the price of the precious metal continues to rally.
The chart below illustrates the monthly flows into U.S. listed Gold ETFs over the last 12 months, and shows that June was a particularly strong month for flows with ~US$3B of inflows. The line on the graph shows the monthly performance in the spot gold price – and it is clear there is a definite relationship between the performance of spot gold and flows! So far we haven’t seen net flows into Australian gold ETFs, and are rather seeing people sell for profit-taking purposes, but it’s going to be worth watching this one carefully as the year progresses.
Gold Spot US Dollar vs Listed Gold ETF flows (US $m)
Download the full Q2 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 is early October.