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The first half of 2020 will go down as one of the most volatile periods in history for investors, as markets followed the Q1 slump with a stunning rebound in Q2.
The global ETF industry emerged from the turmoil in a relatively strong position. After falling ~16% in the first quarter, assets under management (AuM) in global ETFs recovered to finish the second quarter up 16.9% at US$6.28T – the third-highest end-of-quarter figure on record, and some ~$80B away from the record close at the end of 2019.
During the second quarter, the industry received net inflows of ~US$175B, which included ~$20B into equity ETFs, ~$97B into fixed income ETFs and ~$34B into commodity ETFs.
One of the most notable features of Q2, and of the year to date, has been the significant increase in inflows to commodity ETFs. The global experience has been mirrored in Australia, where we have experienced similar flows, with oil and gold exposures in particular growing significantly year-to-date.
Selected Q2 highlights are below (all flow data in $US, unless stated otherwise):
ETFs vs. traditional mutual funds: the gap continues to widen
The global ETF industry ended Q2 2020 at ~US$6.28T in AuM, up 16.9% from the previous quarter.
Asset values rebounded strongly through the second quarter, with global markets recovering from their mid-March lows. In addition, there were strong inflows, with ~$175B in new money being added to global ETFs.
In the year to date, the industry has received net inflows of ~$294B, compared to ~$210B in the first six months of 2019.
The clear investor preference for ETFs as an investment structure over managed funds continues. In the U.S., Q2 saw inflows of ~US$135B into ETFs, more than double Q1’s $63B. This compared to outflows of ~$4B from traditional managed funds.
The trend is particularly evident in flows into equity ETFs, and out of equity mutual funds.
The chart below shows cumulative flows for equity ETFs and mutual funds in the U.S. over the 12 months to the end of June 2020.
Passive strategies continued to be favoured during the quarter, with ~US$92B flowing into passive investments, compared to ~$39B into active investments.
Investors looking for passive exposures turned exclusively to ETFs, with ~US$120B flowing into passive ETFs, compared to outflows of ~$28B from passive mutual funds.
The Australian ETF experience has been consistent with the global trend, with index ETFs capturing 86% of inflows in 2020 to the end of June.
Global ETF flows by asset class and region: fixed income leads the way, with commodities on the rise
In Q2, there were significant changes in inflows in both equity ETFs and fixed income ETFs.
~US$20B flowed into equities ETFs in Q2, down from $69B in the first quarter, while the most dramatic change in inflows was seen in fixed income. After inflows of ~$9B in Q1, global fixed income ETFs took in ~$97B in Q2. Commodity ETFs experienced strong inflows of ~$34B, up from ~$20B in Q1 – particularly in gold ETFs.
In terms of regional exposures, looking at U.S. ETFs, North American exposures remained by far the most popular region in Q2, receiving ~US$113B in inflows, double Q1’s ~$57B. Global ETFs also saw healthy inflows of ~$33B, while the most significant outflows were from Global (ex U.S.) and Asia Pacific, which saw outflows of ~US$13B and ~US$2.3B respectively.
At a sector level, Technology continued to be the standout, adding ~$11.2B in inflows in Q2.
Healthcare did well, taking in ~$6.4B in Q2, up from ~$944M in the previous quarter, possibly reflecting investors wanting to gain exposure to the sector’s efforts to develop a vaccine, and treatments, for COVID-19.
Thematic ETFs were also a strong performer, attracting ~$5.2B in new money, compared to $457M in Q1.
ETF launches vs. closures
At the end of June 2020, there were 8,181 ETFs/ETPs from 468 providers, listed on 72 exchanges in 59 countries.
For the first time, ETF closures have exceeded launches, with ~150 ETFs shut down so far this year (to 30 June), while ~130 have been launched.
Also for the first time, the number of active ETFs launched has so far exceeded the number of passive ETFs launched.
Source: Bloomberg. 2020 figures are year to 17 July.
Spotlight: technology and commodities capture investor interest
In this quarter’s spotlight, we focus on two exposures that have featured strongly in 2020: technology and commodities.
From a performance perspective, the global technology sector has been a standout throughout the first half of the year, significantly outperforming broad market benchmarks.
Technology ETFs have benefited, with Q2’s strong inflows of ~US$11.2B building on the first quarter’s ~$10.2B. Technology ETFs added ~$28B in new money in the 12 months to the end of June, compared to $4.2B in the preceding 12 months.
The impressive performance of the Nasdaq-100 has no doubt contributed to investor interest, with the index up ~30% for Q2, its best quarterly performance since the December quarter of 20011. The Nasdaq-100 was up ~17% for the first six months of the year.
The biggest change in inflows from the same period last year has been the surge in interest in commodities ETFs/ETPs.
Global commodity ETFs have taken in ~US$54B in new money for the six-month period to the end of June 2020, a fifteen-fold increase on the $3.5B in inflows in the first six months of 2019.
In the U.S. over the 12 months to the end of June 2020, commodity ETFs received inflows of ~$45B, five times the $8.5B in inflows seen in the previous 12 months.
SPDR Gold Shares (GLD US) alone added $15.6B in new assets in 2020, while iShares Gold Trust (IAU) added $5.2B, as investors turned to the traditional safe haven of gold amidst unprecedented market turbulence.
The global experience has been mirrored locally, with significantly higher flows into commodity ETFs YTD, particularly gold bullion and oil exposures.
While this has been an exceptionally challenging period for global markets, the global ETF industry has emerged in a position of strength.
The high level of inflows indicates that the liquidity of ETFs is proving attractive to investors, while the fluctuating composition of those flows suggests that the ability of ETFs to offer exposure to a range of asset classes is appealing to investors looking to adjust their asset allocation in response to fast-shifting investment conditions.
1. Source: www.nasdaq.com