Despite continued volatility in the stock, bond and commodity
markets, along with year-long speculation about the Fed's bond
buying program, the year ends with near-record highs for the global
ETF industry. Flows total more than $209.9 billion to date. Here,
our top 10 surprises for 2013*. 1. U.S.-listed ETFs
posted a 24% growth rate
- the highest of any region. This is especially significant because
the U.S. accounts for 71% of all ETF assets worldwide, yet this
year attracted more than 80% of all new dollars invested in ETFs
this year. 2. ETFs offering developed market equity exposure
drove U.S. ETF industry growth to record highs.
Taper fears led to record outflows
in August, but the Fed's decision to delay a shift in monetary
policy drove $128.6 billion in US Equity ETF net new assets. In
total, developed Markets Equity flows as of November were $227.9
Emerging market equity
ETP flows fell into negative territory, approaching the end of 2013
with nearly $10 billion in total outflows. Emerging market flows
were volatile throughout the year, as investors anticipated a shift
in monetary policy, and especially drastic in June, just after Ben
Bernanke hinted that the Fed could soon wind down its bond buying
program. 4. Strategic Beta funds captured nearly a third of
industry flows. What's more, we saw asset growth in excess of 40%
in this category over the last eleven months. Dividend weighted and
minimum volatility funds were two drivers. 5. Fixed income
but kept growing. Heightened scrutiny of the Fed's next steps
pushed many investors to seek solutions to reduce interest rate
risk. Short duration ETPs took in nearly $35 billion in new assets.
6. The pace of new ETF launches moderated, but still
attracted significant assets. We saw more than 400 new ETFs come on
the scene this year attracting more than $22Bn and bringing the
total number available worldwide to more than 4,900. 7.
Demand and dollars invested in
reached all-time highs. When news of the Eurozone's emergence from
a recession during the second quarter of the year made headlines,
investors flocked to this space. We saw $24.3 billion in inflows
during the second half of the year through November. 8.
Monetary and fiscal policy
heavily influenced ETF flows. Fears of the fiscal cliff, shifting
signals from the Fed, quantitative easing in Japan and
, plus debt ceiling negotiations, led to sporadic peaks and valleys
throughout the year. 9.
U.S. retail investors
increased their ETF usage. We see that these investments are
becoming more mainstream, as more than $20 billion in assets came
from individual investors this year alone. 10.
were a consistent and significant drag on industry growth. This
year's 48% drop in assets contrasted record-breaking inflows in
Dodd Kittsley, CFA, is the Global Head of ETP Research for
BlackRock and a regular contributor to the
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Sources: BlackRock, Bloomberg
*Based on November 2013 data.