Credit: Shutterstock photoBy Heather Bell, Managing Editor of ETF.com
Equity ETF inflows have been exceptionally strong this year, and investors can expect them to get even stronger next year, Goldman Sachs said in a research report released last week. The firm forecast that inflows could surge 33% from this year's already-lofty levels.
Acceleration Pending
The Goldman report said that investor demand for equity ETFs could climb from an expected $300 billion this year to $400 billion next year.
"The secular shift from active to passive management should persist next year, driving inflows into equity ETFs and outflows from mutual funds," said the report.
Indeed, while ETFs are expected to continue gathering assets at record speed, Goldman anticipates that equity mutual funds will see net selling of $125 billion on top of this year's $100 billion.
Goldman highlighted the fact that equity ETFs have seen inflows of more than $1 trillion since 2013, while equity mutual funds have had outflows of around $600 billion during the same period. High costs and poor returns may be to blame for the shift from active mutual funds to passive ETFs.
Tax Reform Impact
Goldman added that if tax reform passes―a scenario that has a 65% probability of occurring, according to the investment bank―then ETF flows next year could be even greater than currently expected.
"ETF inflows would benefit from the potential for higher equity market returns" if tax reform happens, said the bank, while adding that mutual funds likely won't see any benefit from changes in tax policy.
Strong consumer balance sheets are another factor that may support ETF inflows next year. Household debt service as a percentage of disposable income is close to the lowest level since 1980, which gives retail investors more money to plow into exchange-traded funds.
ETFs Own 6% Of Market
As Goldman notes, retail investors are the most important holders of ETFs.
"The vast majority of ETFs are owned by retail investors," said the report. "Since 2009, ETF assets as a share of the total equity market (public and private) have doubled to 6% from 3%."
Separately, Goldman analysts pointed out that the influence of passive investments looks even larger when combining ETF assets with those of “index objective equity funds.”
"The combined value of ETF and index objective equity fund assets equal 14% of S&P 500 market cap and 9% of the total US public equity market," which illustrates "the magnitude of passive fund influence," they said.
Recent Inflows
Certainly, this year ETFs have seen record inflows already, with year-to-date levels at a stunning $384.4 billion. And the bulk has headed into U.S. equity ETFs, with that segment picking up nearly $11 billion last week. Much of that was in S&P 500 ETFs.
At the top was the SPDR S&P 500 ETF Trust (SPY), which garnered that position for a second-straight week, with creations of $4.5 billion.
Meanwhile, SPY's biggest rival, the iShares Core S&P 500 ETF (IVV), took the No. 2 spot this week, with inflows of $1.5 billion. Another rival, the Vanguard S&P 500 ETF (VOO), followed suit at No. 3, with inflows of $1.4 billion.
That said, while SPY beat its rivals this week, the year-to-date figures tell a different story. The world's largest ETF has net outflows of $2.1 billion for the year as a whole. For the same period, IVV has net inflows of $27 billion and VOO has net inflows of $12 billion.
Check out the tables below to see the highlights of last week’s flows:
Heather Bell can be reached at hbell@etf.com.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
