For the first time ever, annual global net inflows into exchange traded funds (ETFs) have surpassed $1 trillion in 2021, and this milestone was reached in November. This brought total global assets invested in ETFs close to $9.5 trillion, more than twice their value as of the end of 2018. In 2020, the global inflows for the full year were $735.7 billion, according to data compiled by investment research firm Morningstar Inc.
ETFs that are low cost, passively managed investment vehicles tracking U.S. equity indexes accounted for most of that inflow, particularly those ETFs sponsored by the Vanguard Group, BlackRock, Inc. (BLK), and State Street Corp. (STT). These three giant ETF sponsors collectively control more than 75% of U.S. ETF assets.
- ETFs have recorded global net inflows of over $1 trillion year to date through November 2021.
- This is the first time that they have reached this milestone.
- Most of these inflows have gone into ETFs tracking U.S. equity indexes.
- Vanguard, BlackRock, and State Street are the major beneficiaries of this surge.
Analysts indicate that rising stock markets—with a gain of more than 25% for the S&P 500 Index so far in 2021—coupled with a limited menu of investment alternatives that offer higher yields at reasonable risk have spurred investor interest in such ETFs. "You have this historical precedent where you have tumultuous equity markets, and more and more investors have made their way to index products," observed Rich Powers, the head of ETF and index product management at Vanguard.
More generally, ETFs, especially passive funds tracking market indexes, have proven to be attractive on the basis of cost, liquidity, and transparency. Additionally, ETFs tied to various sectors have recorded high returns despite volatility in the market.
Also, with inflation on the rise, ETFs that hold inflation protected bonds are enjoying a surge in investor interest, although they still represent a small proportion of the total inflows. For 2020 as a whole, these ETFs recorded global net inflows of $16.45 billion, but the year-to-date figure as of Aug. 8, 2021, was over $27 billion. If this pace is sustained for the remainder of 2021, inflation protected bond ETFs will pull in roughly three times the amount that they did in 2020.