Investors have been less keen on exchange traded funds lately as a result of market volatility in some of the most popular investment areas, with total assets invested in the sector globally decreasing by a record $180.1 billion in February, according to ETFGI.
The data provider’s report shows that assets invested in ETFs and exchange traded products (ETPs) have fallen by 3.5% in the month of February, retreating to $4.968 trillion from $5.148 trillion in January. This marks the largest monthly drop since January 2016, when ETF assets fell by 4.69%.
Much of this is due to market volatility hitting some of the largest sectors, most notably US stocks. This sector has been particularly volatile throughout the year, with TrackInisight data showing US stock ETFs have returned a negative 3.2% this year to the end of March (see chart below).
Volatility causing significant outflows
Sentiment towards US stocks was particularly hit when a bout of volatility shocked Wall Street back in February, causing investors to withdraw $23.5 billion from US and Canadian ETFs during that month, according to ETFGI (the first outflows from this area in over two years). Sales of US equity ETFs are often indicative of the overall flows into the sector, since these make up such a large proportion of exchange traded products globally.
Meanwhile, according to the Financial Times, the amount of money invested in ETFs overall in February was some 81.9% lower than during the same month last year, hitting the lowest level of investment since May 2016.
Net new assets flowing into exchange traded products during February were $12.4 billion, marking a sharp turnaround from the $108 billion of inflows the sector enjoyed during the first month of the year, which also happened to be a record. The previous highest monthly amount invested in ETFs was in September 2008 at $68.7 billion.
The bigger picture
Overall, however, ETPs continue to see positive flows this year, despite the volatile returns. TrackInsight data shows developed stock ETFs have taken in a total of €41 billion this year to end of March, even thought the return over that period is -3.25%.
Emerging stock ETFs have been particularly popular with investors due to their strong performance, taking in consistent flows and racking up €13.4 billion over the period. However, over the last week of March the stronger returns have petered off and the overall performance so far this year stands at a meagre 0.4%.
Bond ETFs overall have also continued to take in money, with inflows of €9.6 billion year to date, despite consistently negative returns (-2.9% to the end of March).
So it would seem that despite the volatility, ETFs continue to be an attractive investment option, meaning February’s low demand could be just a blip. The coming months will show what the prevailing trend for 2018 will be.