Within the Deutsche Bank Markets Research division global equity research is presented within a range of reports, of which the DB SYNDEX Outlook and ETF Annual Review & Outlook are its two flagship annual publications, giving investors a comprehensive insight into global ETF markets.
In 2013, global ETF assets grew by 28 per cent to USD2.25tn. Of this, new cash flows contributed 14.7 per cent (USD259bn) whilst the other 13.5 per cent came from asset price appreciation.
“The fact that developed market economies are recovering is part of the story [in explaining ETF growth],” says London-based strategist Ari Rajendra, (pictured). “Allocation into equities was up on 2012. The US ETF market received record inflows of USD214bn.” This puts the size of the US ETF market at USD1.61tn; a 33 per cent increase year-on-year.
ETF trading activity was also up 10 per cent in 2013, reaching USD15.7tn.
Such trends are likely to continue in 2014 according to Rajendra. Indeed, the report makes a bullish call by suggesting that global ETP assets could reach the USD3tn milestone.
“We expect ETPs (including ETFs and other exchange traded products such as ETVs/ETCs) to experience a similar, but slightly lower, growth rate than ETFs and reach about USD2.70tn in 2014 in our base case scenario, and pass USD3tn in a bull market case,” writes Rajendra and the rest of the global research team.
Aside from the two flagship annual reports the team produces weekly and monthly reports covering global developments in the ETF space : “We closely track ETF launches, as well as those that de-list and try to be as accurate as possible. Our flagship reports are widely used across the industry. These are very data-intensive reports. Separately, we often marry up these reports with more thematic-type ideas and offer educational ETF pieces as well,” notes Rajendra.
Rajendra says that smart beta was a huge theme in 2013. Within the SYNDEX report, figures show that smart beta AuM year-on-year grew from USD6.6bn to USD12.5bn.
Another important trend is within currency-hedged ETFs. For Japanese related ETFs, the AuM of both US and European-listed ETFs rose USD2.5bn to USD17.5bn respectively in 2013.
“I think this trend will continue in 2014. If you’re a European investor and want to gain exposure to countries like Japan but are concerned about local currencies potentially eroding the upside earned from equities then currency-hedged ETFs are a useful tool,” adds Rajendra. “It’s a cleaner way for investors to get broad market exposure in places like Japan.”
One investment theme that Deutsche Bank favours in 2014 is dividend growth over high dividend yield. Within the SYNDEX report, the team recommends buying Southern Europe and MSCI Germany to take advantage of improving macro data, expectations of a turn in earnings and credit recovery. It also favours large-cap technology dividend stocks in the US.
“The issue with high dividend yield stocks is that they tend to be defensive and hence could lag on market rallies. If you expect stocks to rally these types of ETFs may underperform so I don’t think they will see tremendous inflows as compared to dividend growth ETFs,” opines Rajendra.
On Deutsche Bank winning the award this year Rajendra says: “We feel honoured and would like express our gratitude towards the readers of etfexpress for showing their appreciation and support for our research.”