June 6, 2013 6:40 pm

Record-breaking ETF inflows top $100bn

More than $100bn has flowed into exchange traded funds so far this year, as the ETF industry’s expansion continues at a record-breaking pace.

ETFs (funds and products) have attracted inflows of $107.4bn in the first five months of 2013, an increase of 31.3 per cent on the same period last year, according to ETFGI, a consultancy that monitors industry trends.

“ETFs are creating a sea change in the mutual fund industry,” said Manooj Mistry, Deutsche Asset & Wealth Management’s head of exchange-traded products for Europe, the Middle East and Africa.

Speaking at the Index Universe “Inside ETFs” conference in Amsterdam this week, Mr Mistry said the wide range of ETFs now available allowed the capital of retail investors to be managed on the same basis as institutional funds.

But while institutional investors such as pension funds might hold 30 per cent of their capital in passive investment strategies, fund of fund managers and retail investor-focused portfolios run by private banks typically made smaller allocations of 15-20 per cent, suggesting considerable potential for ETFs to grow.

Equity-linked ETFs have seen inflows more than double to $94.7bn so far this year, compared with $39.3bn in the first five months of 2012, helped by stock markets in the US and Germany reaching all-time highs in May.

Dodd Kittsley, head of ETP research at BlackRock iShares, noted that ETFs linked to Japan’s stock market accumulated inflows of $10.2bn in May, the largest single monthly inflow on record.

Mr Kittsley said buying interest moderated when the Japanese stock market started to weaken in late May. Inflows into Japan equity-linked ETFs at $23.1bn so far in 2013 are already substantially higher than the full-year inflows for 2012 ($10.6bn) and 2011 ($9.9bn).

But inflows into fixed income ETFs have slowed amid concerns about bond price bubbles forming and growing uncertainty over the future pace of the US Federal Reserve’s bond-buying programme. Fixed income ETF inflows have dropped to $19.5bn so far this year, compared with $33.7bn in the same period last year.

Commodity-linked ETFs have suffered large outflows of just under $24bn so far this year, compared with inflows of $3.8bn in the first five months of 2012. The redemptions have been concentrated in gold exchange traded products, with investors withdrawing a further $6bn from bullion ETPs in May alone. This follows a sharp price correction in the market in April.

In the 2013 race among providers for investors’ cash, BlackRock and Vanguard continued to extend their lead over the chasing pack.

BlackRock’s iShares business has attracted inflows of $30.9bn so far this year, up 65 per cent on the $18.7bn accumulated by the same time in 2012.

Vanguard, the third-largest ETF provider globally, has gathered inflows of $28.8bn, up 17.6 per cent on the same period last year.

But big outflows from the world’s largest gold ETF, known as GLD, have weighed on State Street Global Advisors, the world second-largest ETF provider. SSgA has registered outflows of $3.7bn so far in 2013, compared with inflows of $6.6bn by this time last year.

Deborah Fuhr, managing partner at ETFGI, noted that Daiwa and WisdomTree, two midsized managers, were among the top four ETF providers by inflows in May because of the strength of buying interest in their Japan equity products.

So far in 2013, WisdomTree has gathered $10.5bn, more than double its entire 2012 inflows, while Daiwa’s ETF business has attracted $4.5bn, more than three times its inflows for the whole of last year.

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