Sector ETFs have seen a huge surge in investor interest since the financial crisis, with total assets in European vehicles increasing nearly five-fold since 2008 and inflows of some $3bn last year.
Research from State Street Global Advisors (SSGA) has revealed these types of ETFs have seen huge interest both in Europe and across the pond, with total assets in European-listed sector ETFs growing 487% since 2008, while US-listed funds saw a 548% jump and $30bn of inflows in 2016.
Assets in sector ETFs have reached $394bn by the end of 2016, SSGA reports, with particularly strong interest in real estate ETFs last year. SSGA reports real estate sector equity ETFs in Europe seeing a tenfold increase in assets over the last nine years, and $9bn of inflows last year alone.
According to TrackInsight data, flows into real estate stock ETFs peaked around September 2016, but began slowing down as the sector’s performance deteriorated later in the year. However, they have picked up once again this year (see chart below).
TrackInsight’s top-rated fund offering exposure to the real estate market and available to investors in Europe is the LYXOR FTSE EPRA/NAREIT Global Developed UCITS ETF, which has seen some investor interest over the year to 12 May, while Real Estate All Cap Stocks ETFs experienced positive flows last week.
Antoine Lesné, head of SPDR ETF strategy & research for EMEA, believes the marked increase in the popularity of sector ETFs could be due to the fact they offer more “targeted” exposure than growth and style investing, while also remaining cost efficient.
For example, the Vanguard REIT ETF, the largest real estate ETF for which TrackInsight has data (at €30.8bn), has a total expense ratio (TER) of just 0.12%, and has seen flows increase in 2016.
Lesné said: “By investing in an entire sector, investors gain greater diversity, reducing single stock risk, whilst achieving a much wider dispersion return than style indices. A sector rotation strategy allows investors the potential to benefit from more predictable economic trends likely to impact certain industries.”
When it comes to real estate, another advantage of ETF exposure is the liquid nature of the investment, with real estate being generally a very illiquid form of investment.
Apart from real estate, technology and energy sector ETFs have been particularly popular with investors since the financial crisis, SSGA has found.
Technology was particular popular in the US, with more than a tenfold increase in assets over the period, but the sector has also been attracting assets in Europe. According to iShares and Bloomberg data, assets in four robotics ETFs listed in Europe and the US grew from $415m at the end of 2016 to $1.08bn at 31 March 2017 (see previous article on the growth of robotics and disruptive technology investing for a more detailed overview).
Meanwhile, energy stocks ETFs have seen nearly €5bn of cumulated flows over the past year, TrackInsight’s data shows.
Healthcare stocks ETFs have also been popular with investors, with flows picking up particularly after Donald Trump won the US Presidency, which has been widely considered more beneficial to US pharmaceuticals than Hillary Clinton as President, given her pledge to address drug pricing (although Trump has since also attacked overpriced medication).
SPDR’s Lesné believes sector ETFs will continue to enjoy investor demand for the rest of the year, particularly given the shifting political and macro-economic backdrop.
