iShares attracted USD167 billion in assets globally into its ETFs in 2018 – 32 per cent of market share – against a backdrop of broad market volatility which pushed investors towards ETFs in the search for risk diversification and liquidity.
A number of iShares ETFs saw record trading in 2018, the firm writes with secondary trading volumes surpassing USD7.3 trillion for iShares funds in the US and Europe combined, compared to just over USD5 trillion in 2017, an increase of 42 per cent.
“Last year showed the ever-growing versatility of iShares ETFs. Investors around the world used ETFs to capture alpha, manage risk, invest sustainably, and tap liquidity in tighter financial conditions,” says Mark Wiedman, Global Head of iShares and Index Investments. “ETFs are now established as natural parts of every investor’s portfolio.”
iShares ETFs reports a notable increase in adoption as proxies for their underlying securities, a trend that was particularly evident during periods of market stress when investors used ETFs to add liquidity.
Record industry trading volumes of almost USD2 trillion in 2018 were clear evidence that investors increasingly see European ETFs as an efficient and liquid way to invest, the firm says.
“iShares maintained its position as an industry leader in Europe, capturing 45 per cent of industry flows and achieving notable industry milestones during the year,” the firm writes.
Sustainable ETFs attracted European investors over 2018, who put more than USD1 billion into iShares’ sustainable ETFs over the year, while the iShares thematic range reached USD4 billion in assets.
“ETFs and index funds make up about 10 per cent of portfolios on average in Europe, and we see this number increasing to 50 per cent over coming years. Across the region, technology and regulation are driving structural change in the form of cost sensitivity in the wealth industry and transparency of trading for institutional investors. These factors are intensifying investor scrutiny on the true drivers of return and the products best-suited to delivering client goals,” says Stephen Cohen (pictured), Head of iShares EMEA at BlackRock. “In parallel, investors are broadening how they invest, fuelling trends such as sustainable and thematic investing. These factors play squarely into the characteristics and choice afforded by ETFs and index funds.”
November and December saw iShares set new monthly records with flows of more than USD29 billion in November and USD44 billion in December.
Net new investments into iShares core strategies were robust in every region, with USD109 billion globally, the firm writes. iShares factor strategies continued to be strong as well, taking in USD22 billion in 2018; the bulk of flows went to single factor ETFs such as quality, momentum and minimum volatility.
Flows into iShares sustainable ETFs reached USD3 billion globally and, the firm writes that sustainable iShares ETFs led the industry with a 52 per cent organic growth rate in 2018, topping USD8 billion in assets under management. BlackRock believes sustainable ETFs are at an inflection point, with assets under management (AUM) for the industry projected to reach more than USD400 billion by 2028, from USD25 billion today.
iShares writes that fixed income continues to represent one of the fastest-growing segments of the ETF market. iShares is the global industry leader for bond ETFs, both in flows (USD50 billion for 2018) and AUM (USD428 billion). Among market segments, the greatest share during 2018 went to short-duration and high-quality bonds, as investors globally sought to offset equity risk, generate income and hedge against rising rates.
Industry flows into bond ETFs came to USD131 billion globally, with a total AUM of USD878 billion. Based on an asset growth rate average of 20 per cent annualised globally over the past five years, iShares projects that global bond ETFs could surpass USD1 trillion by 2020.
Looking forward, iShares believes that ETF momentum will continue to build, with exceptional growth not just in overall size but also in scope. More and better uses of ETFs will be fuelled by demand from investors themselves, who are continually looking for innovative ways to access news exposures, achieve portfolio outcomes and make progress toward their investment goals.
Technology has also advanced iShares ability to index markets and strategies that were unimaginable even a decade ago, the firm writes. Last year, iShares projected that global ETF assets could reach USD12 trillion by 2023.
“The industry is still on course to meet that milestone, thanks to macro forces that have remained firmly in place. These include: investors’ sensitivity to cost; transformations in the financial advice model; the evolution of fixed income platforms; and an erasure of the traditional – and less relevant – distinction between ‘active’ and ‘passive’ investing.”