Bank of America has cautioned that this kind of ‘extreme bullish’  investor sentiment has previously preceded a setback
Bank of America has cautioned that this kind of ‘extreme bullish’ investor sentiment has previously preceded a setback © Financial Times

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Exchange traded funds attracted record inflows of $121bn in November, a jump of 14.5 per cent on the previous best month for new business, as Joe Biden’s victory in the US presidential election and successful developments for coronavirus vaccines unleashed a surge of new investment.

The huge monthly haul brings net global inflows in the first 11 months of this year to $659.3bn, 15.4 per cent more than the $571.1bn gathered over the same period in 2019, according to ETFGI, a London-based consultancy.

“The ETF industry is on course for a record year. Investor inflows globally into ETFs have already surpassed the previous full-year record of $654bn registered in 2017,” said Deborah Fuhr, founder of ETFGI.

The flood of new business for ETFs this year coincides with growing worries about valuations for US equities with the S&P 500 hitting an all-time high this month in spite coronavirus infections and deaths continuing to increase across America.

The cyclically adjusted price-to-earnings ratio of the S&P 500 — a closely watched valuation measure — has reached its highest level since the dotcom bubble, which preceded a market crash in March 2000.

ETFs linked to US equities registered record monthly inflows of $62.5bn in November, accounting for just over half of the global total. 

Bank of America cautioned that investor sentiment, measured by fund flows, declining cash holdings and stock buying patterns, has accelerated towards an “extreme bullish” level that historically has provided a “sell” signal.

The surge in ETF inflows has prompted more debate about whether tracker funds could destabilise financial markets. More than 70 per cent of a group of 500 institutional investors that together oversee assets of more than $13tn said large inflows into index tracking ETFs were exacerbating market volatility, according to a survey released this week by Natixis, the French asset manager.

The survey also found that six out of 10 of the investors believed that widespread use of tracker funds demonstrated that market fundamentals, such as valuations, were being ignored.

Competitive pressures are intensifying across the asset management industry globally as the growing popularity of ETFs boosts the power of BlackRock and Vanguard, the world’s two largest providers of tracker funds.

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Pennsylvania-based Vanguard has registered ETF inflows of $178.5bn in the first 11 months of 2020, 49.6 per cent higher than it gathered over the whole of 2019, although about $37bn of Vanguard’s ETF inflows so far this year have come via an arrangement which allows clients to move an existing holding in a mutual fund to an ETF.

BlackRock, the world’s largest asset manager, has attracted inflows of $160.2bn so far this year into its iShares ETF unit, which puts it on track to exceed its 2019 total of $182bn.

ETF inflows in 2020 are also higher than all of last year for State Street, Invesco, DWS, JPMorgan, Van Eck and ProShares.

Frankfurt-based DWS, which announced a swath of ETF fee cuts this month, has recorded inflows of $17.7bn so far this year, compared with $12.8bn during 2019. 

Ms Fuhr said she expected strong inflows into ETFs during December as investors digested more positive news on coronavirus vaccines.

“December has historically provided some of the strongest months on record for new business for ETF providers during previous stock market rallies towards the end of the year,” said Ms Fuhr.

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