BlackRock pulled more cash into its exchange traded fund arm in the first six months of 2017 than over the whole of last year, when the world’s largest asset manager attracted record ETF inflows.
Investors have ploughed around $140bn into BlackRock’s ETF business so far this year, already exceeding the annual record of $138bn gathered over the whole of 2016, according to preliminary data from ETFGI, a London-based consultancy.
Vanguard, the biggest competitor to BlackRock, registered ETF inflows of around $82bn by the end of June. It is on course to beat its annual record of $97bn, also registered in 2016.
State Street Global Advisors, the ETF industry’s third-largest provider, and Charles Schwab, the US asset manager, have also experienced a marked pick-up in new business this year.
Discontent with the high fees and poor performance of many traditional investment managers that try to beat the market has fuelled a shift by investors out of active funds and into low-cost index-tracking ETFs.
Global investor inflows into ETFs have reached around $335bn so far in 2017, comfortably on track to beat 2016’s record of $390bn. Figures from Australia, which reports ETF data later than other countries, have not yet been included in the global tally of flows in 2017.
“ETF adoption is growing markedly in Europe and Asia as well as the US. Innovations such as robo-advisers that use ETFs as portfolio building blocks will help to drive growth further,” said Deborah Fuhr, co-founder of ETFGI.
However the fast growth of the ETF market — which has drawn $1.7tn in new cash in fewer than five years — has heightened concerns that the shift into these passive funds is fuelling a price bubble in the US stock market. The S&P 500 index hit an all-time high in mid-June.
A BlackRock spokesperson said ETFs were not to blame for the rise in stock markets. “The increase in investor demand for global equities is the fuel for rising markets and this is occurring across a wide variety of investment vehicles, not just ETFs,” she said.
The surge of money into ETFs could soon come to an end, in the event of a market downturn. Equity ETFs that offer exposure to stock markets account for 80 per cent of assets in these passive vehicles.
A record number of fund managers believe equity markets are expensive, according to the latest monthly survey by Bank of America Merrill Lynch. More than four-fifths of the survey’s respondents said the US stock market, which has risen 13 per cent since President Donald Trump’s election victory in November, was the most overvalued equity market.
Michael Hartnett, chief investment strategist at BofA Merrill Lynch, said conditions for equity markets were likely to be much more challenging over the next six months as a result of rising interest rates and changes in central banks’ policies. He said a polic8y shift by the US Federal Reserve and the European Central Bank has increased the risk of a “big fall” in developed stock markets this autumn.