2017 – a year of growth, consolidation and themes

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2017 was the year that will go down in ETF history as the record-breaking year of all time so far for this extraordinarily fast-growing industry.

January saw ETF data provider ETFGI report that assets invested in ETFs and ETPs, listed globally, increased by 36.3 per cent during 2017 to reach a new high of USD4.835 trillion at the end of December.

The firm reported that assets invested in globally-listed ETFs/ETPs grew by a record USD1.287 trillion during 2017, which was over double the previous record of USD554.00 billion set in 2016. 

The increase of 36.3 per cent, from USD3.548 trillion at the end of 2016, also represented the greatest growth in assets since 2009, when markets recovered following the 2008 financial crisis.

During 2017 ETFs/ETPs listed globally saw record net inflows of USD653.97 billion according to ETFGI; 67.4 per cent more than net inflows for 2016, and over double the average for net inflows over the previous five years. December 2017 also marked the 47th consecutive month of net inflows into globally-listed ETFs/ETPs, with USD53.81 billion gathered during the month.

The majority of these flows went into the top 20 ETFs by net new assets, which collectively gathered USD228.52 billion during 2017. The iShares Core S&P 500 ETF (IVV US) on its own accounted for net inflows of USD30.20 billion.

And of course, all of this money flowing into the industry caused those who aren’t in it, but want to be, acting on their desires. 2017 became the year of acquisition in the industry, particularly in the UK where the end of the year saw ETF Securities sold in two parts.

November saw WisdomTree buy the exchange-traded commodity, currency and short and leveraged ETF business, with USD17.6 billion under management, from ETF Securities. The resulting group emerged with assets under management of roughly USD66 billion globally and a position as ninth largest ETP sponsor globally and largest global independent ETP provider.

Shortly after that announcement came news that Legal & General Investment Management would purchase ETF Securities’ Canvas ETF platform with USD2.7 billion of AUM spread across 17 products, bringing ETF Securities’ Howie Li and his team across to the UK’s largest asset manager.

Invesco was busy acquiring things this year with the October story of its purchase of Guggenheim Investments’ ETF business in the US and earlier in the year the story of its purchase of Source.

Even the exchanges were at it with Euronext expanding its ‘Federal Model’ with the EUR137 million acquisition of the Irish Stock Exchange, making Ireland its sixth core European country. Euronext intends to position Dublin and the ISE as a centre of excellence for the Group in the listing of debt, funds and ETFs.

In the Netherlands, BinckBank, Flow Traders and Think ETFs’ management sold their stakes in Think ETF Asset Management to VanEck Associates Corporation and latest news is that the truly globe-trotting ETF firm Mirae Asset Global Investments is to acquire Global X Management Company, a New York-based ETF provider.

Mirae Asset is adding an anchor presence in the United States (Global X) to its existing ETF businesses, in Canada (Horizons), Australia (BetaShares) and Asia (Tiger ETF). And its anchor weighs heavily with some USD30 billion in assets across the group.

Formal enquiry into what investors want from ETFs came from a survey of 210 institutional investors, conducted by Jane Street Capital during the year. The firm’s survey revealed that 30 per cent of global ETF traders executed more than 50 trades per month, with 42 per cent of European institutions trading at this frequency. 

Some 21 per cent of institutional ETF traders executed block trades in excess of USD100 million in 2016, with 32 per cent executing trades between USD25 million and USD100 million. 

In terms of order types, Jane Street’s survey found that 41 per cent of respondents said that they most frequently trade on risk. Trading on risk was most popular among US institutions, particularly for ETFs tracking more illiquid or volatile securities. 

European traders use ETFs more tactically versus global peers (32 per cent vs. 26 per cent for tactical reasons), the survey found. Jane Street reports that in the US/Americas, there was a comparatively strong percentage using ETFs for liquidity sleeves or transition management for large-scale allocation shifts, while Asian traders were comparatively more likely to use ETFs for risk management and/or hedging.

Interestingly, the research revealed strong regional differences in the preferred trading counterparty, with Europe favouring market makers by a slim margin (36 per cent of all European respondents), the US favouring agency brokers (42 per cent) and Asia heavily favouring investment banks (53 per cent). 

Emerging markets and high-yield ETFs were areas where concerns around liquidity were highest, with 70 per cent of respondents rating their level of concern as four or five on a scale of one to five. Clients surveyed indicated a preference for working with market makers in these asset classes, Jane Street reported.

Another significant trend driven by investor demand in ETFs is for thematic ETFs. ESG, SRI and impact investing have dominated demand with BNP Paribas launching ESG offerings across the geographical building blocks of their range from Europe to Japan and driven by investor demand.

Award winning Luxembourg- headquartered Candriam Investors Group were new to our lists this year. They have EUR112 billion in funds under management, entirely in environmental, social and governance (ESG) investing.

The firm is part of the New York Life Insurance Company group and launched ETFs through fellow NY Life’s ETF firm IndexIQ, bringing five ESG ETFs to the industry. 

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Beverly Chandler
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Managing Editor