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iShares sees record inflows in 2016

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BlackRock Inc reports that its iShares business dominated the global ETF industry in 2016, winning a record USD140 billion in new flows, driven by moves into bond, core and smart beta ETFs. 

The figures represent 13 per cent organic growth, iShares says, reporting that overall, the global ETF industry saw net inflows of USD375 billion in 2016, surpassing the previous year’s total of USD348 billion.

Records posted across the board, include a new growth record set in the US with net inflows of USD 107 billion (2015: USD97 billion) and market leading USD32 billion of net inflows in Europe. iShares was the market share leader in both regions (US: 38 per cent, Europe 61 per cent). Asia Pacific clients also set a record for iShares ETFs bought this year, adding over USD10 billion.

 iShares bond ETFs gathered a record USD60 billion, capturing 52 per cent of all net inflows into bond ETFs globally. iShares bond ETFs attracted record net inflows in the U.S. (USD38 billion) and Europe (USD21 billion).

Demand for iShares global smart beta ETFs surged to record highs, the firm writes, with USD20 billion of net inflows. iShares reports that it was number one in smart beta market share globally (37 per cent), led by USD9 billion of net inflows into minimum volatility ETFs.

iShares Core ETFs added a record USD67 billion in global net inflows, the firm says. BlackRock re-priced its US iShares Core ETFs in October and reports that since then investors have adopted iShares Core ETFs faster than expected, adding USD27 billion.

Institutional investors looking for simpler, less costly alternatives to derivatives switched around USD10 billion to iShares ETFs from futures or swaps positions, the firm writes. Mark Wiedman, Global Head of iShares and Index Investments at BlackRock, says: "iShares ETFs are helping investors of all sizes build more efficient and precise portfolios.  In a year marked by unprecedented political change and periods of significant market uncertainty, investors turned to ETFs in record numbers to express market views, seek outperformance and invest for the long term.

“We believe we are still in the early stages of a historic shift to ETFs and indexing more broadly.  We believe trillions of dollars will move over the next few years as institutional adoption of ETFs and the move to fee-based advice in the retail sector both gather momentum. Investors continue to embrace the efficiency, quality, and value of indexing to execute long or short term investment ideas.”

Looking forward, BlackRock’s outlook for ETFs and Index Investing in 2017 includes a prediction that active versus passive will be replaced by active and passive. The firm writes that as investors demand both value and premium service from their financial advisors and investment managers, investors will increasingly build active portfolios by using ETFs and index funds alongside high conviction alpha strategies.

“Wealth managers will continue to move from product selection to portfolio construction.  As the move towards fee-based financial advice picks up pace, wealth advisors will replace costly index-hugging active managers with lower-cost index exposures for the core of client portfolios. 
 
“Bond ETFs will continue to lead the way to bond market modernisation. Bond ETF adoption will ramp up as the market infrastructure deepens and advisers turn to low cost, scalable ETFs in an increasingly fee-based environment. The bond ETF will continue to re-shape the way buyers and sellers trade bond risk, and play an instrumental role as investors seek to navigate a rising rate environment and generate income in portfolios.

“Investors will move to factor-based ETF strategies that seek to capture underlying drivers of returns. Within smart beta, multifactor and single factor ETFs will be a major driver of growth – alongside minimum volatility strategies – as retail and institutional investors seek to combine the potential for outperformance with low cost in the centre of their portfolios.  Smart beta innovation will also likely be seen within fixed income.

“Institutions will increasingly turn to ETFs as replacements, or reference assets, for derivatives products. As banks’ balance sheet costs continue to increase, so too has the cost of using futures and swaps. ETFs now typically represent not only the more cost efficient option, but can also offer greater operational simplicity and more precise exposures.”
 
Rachel Lord, Head of EMEA iShares and Index Investments at BlackRock, says: “ETFs are playing a crucial role in the evolution of the financial industry in Europe. Investors are turning to ETFs for both strategic investments and tactical allocations in their portfolios. These products will continue to be the often unseen engine behind financial solutions that are helping people across the continent invest their savings and meet long-term goals on behalf of clients.”

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