First half of 2022 sees a 30% fall in net inflows
The first half of the year saw a nearly 30% decline in new business for exchange traded fund providers as both the equity and bond markets fell precipitously in response to skyrocketing inflation and rising interest rates.
Citing figures from ETFGI, a London-based consultancy, the Financial Times reported global net inflows into ETFs reached US$463.8 billion in the first half of 2022, a decrease of 29.6% from the same period in 2017.
The Russia-Ukraine war, China's zero-Covid policy, and the poor performance of the equity and bond markets in the first half of the year have all had an impact on the ETF business, according to the firm’s founder Deborah Fuhr.
With declines in equities and bonds overshadowing inflows this year, global ETF assets fell to US$8.6 trillion from US$10.3 trillion at the end of December.
But in a sign of the wider transition away from classic fund styles toward products that trade on exchanges, Fuhr pointed out that ETFs generally had so far received more new business than they did in the same period in 2019 and 2020.
At the halfway point of the 2022 competition among exchange traded fund providers to attract new clients, Vanguard has a slim lead over BlackRock.
US$118.6 billion in ETF inflows were collected by Pennsylvania-based Vanguard in the first half of the year, a decrease of 37% from the corresponding period in 2016. BlackRock reported ETF inflows of $109 billion, a decrease of 29.6% from the first half of 2021.
The two have been locked in fierce competition over the past ten years, employing aggressive ETF fee reductions to entice clients. As a result of this, rival managers are being forced to adjust their business models, which is sparking changes throughout the whole investing sector.
State Street Global Advisors, the third-largest supplier of ETFs in the world by assets, has seen a more dramatic decline. ETF inflows for State Street fell by 80% to just US$8.8 billion.
After a decade of great gains for equity markets that accelerated asset growth, the sudden decline in risk-taking among investors this year has added a new dimension to competitive pressures throughout the ETF business.
Financial advisors and wealth managers frequently utilize US sector ETFs to place tactical wagers, according to Matthew Bartolini, head of SPDR Americas research at State Street Global Advisors. This de-risking by investors is especially noticeable in these ETFs.
In the first half of the year, ETFs connected to defensive industries saw favorable inflows since their earnings are thought to be less susceptible to a slowdown or recession.
Consumer staples ETFs brought in US$5.6 billion, utilities ETFs US$2.5 billion, and healthcare sector ETFs US$9.1 billion in new investments.
On the other hand, investors withdrew US$7.3 billion from industrials ETFs and US$7.3 billion from consumer discretionary ETFs, which are tied to cyclical industries. The first half of 2022 saw significant outflows of US$12.7 billion from US financials ETFs as well.
The flows of fixed income ETFs also showed a decrease in risk appetite.
In the first half of the year, investors withdrew US$1.10 billion from emerging market bond ETFs and US$15.8 billion from US high-yield ETFs, which carry riskier corporate bonds.
In the first half, US$60.6 billion was invested in short-term US government bond ETFs, the safest sector of the fixed-income markets.
