Demand for Fixed Income ETFs Continues to Grow
Fund Launches and Updates
Nutmeg has partnered with J.P. Morgan Asset Management for the exclusive launch of Smart Alpha investment portfolios. Alongside passive ETFs, the Smart Alpha portfolios also include innovative active ETFs that benefit from J.P. Morgan Asset Management’s research expertise and global team’s experience. Link
Dimensional Fund Advisors’ ETFs begin trading last week, a first step as the quant giant prepares to convert around $20 billion of mutual funds into the new wrapper. Link
JP Morgan Asset Management has shut the second of its two debut ETFs from when the firm entered the European market in 2017. The JP Morgan Managed Futures UCITS ETF (JPMF) closed earlier this week with $52m assets under management while the JP Morgan Equity Long-Short UCITS ETF (JELS) was liquidated in June. Link
There have been a record 72 ESG ETF launches in 2020, 28 more than the previous record set in 2018 and up from 33 launches last year. Link
Global flows into exchange-traded products fell to $47.4B in October, down from $55B in September.
Equity flows were behind the overall drop, falling to $22.4B in October, while commodity products recorded their lowest monthly inflows this year despite $1.5B of gold and silver buying. Link
Amundi’s latest ETF flows covering the month of October reveals that concerns over the US election and the second wave of Covid-19 in Europe reduced global ETF in-flows in October to EUR42.7 billion from EUR48.6 billion in the previous month.
Investors allocated EUR17.4 billion to equities, almost 50 per cent lower than September inflows of EUR33 billion, and EUR25.4 billion to debt. Link
Europe’s ETFs had their highest weekly net inflows since December 2019 amid the “euphoria” surrounding a potential Covid-19 vaccine. Equity ETFs sold in Europe hit €5bn in net inflows last week, by far the best sales performance this year, according to Morningstar data.
Last year sales of European equity ETFs only surpassed this level on two occasions, the third week in December, when net inflows hit €7.2bn, and the week at the end of October, when they hit €6.4bn, according to Morningstar.
The best-selling asset class was US large-cap blend equity, with net inflows of €1.5bn, while global large-cap blend equity ETFs had €402m of net sales.
The iShares EURO STOXX 50 fund was the biggest individual winner, with €639m in net inflows in the five days to November 13. Link
Vanguard and BlackRock together grabbed close to two-thirds of net inflows into the exchange traded fund industry during October. Investors allocated $52.2bn to ETFs in October, down from $59.7bn in September, according to ETFGI.
BlackRock has seen inflows of $118.9bn so far this year into its iShares ETF unit, slightly below the $124.2bn recorded in the first nine months of 2019.
Vanguard racked up $154.8bn of net new money in the first ten months of 2020, up 73 per cent on the same period last year and well ahead of the $119.3bn it gathered during the whole of 2019. Link
Demand for fixed income ETFs in Europe has exploded over the past 18 months driven by ongoing ETF innovation, the modernisation of bond markets and the Federal Reserve’s decision to purchase ETFs for the first time in its history earlier this year.
The fixed income segment of the European ETF market has developed rapidly over the last five years with assets jumping from €95bn in 2015 to €257bn, accounting for over a quarter of the entire ETF ecosystem this side of the pond, as at 30 September. Link
The European Systemic Risk Board (ESRB) has said the ETF ecosystem showed some resilience during the period of market stress in March. While it stressed the role of APs still needs to be further assessed, the ESRB said, in its EU Non-bank Financial Intermediation Risk Monitor 2020, the “exceptionally” high discounts for fixed income ETFs seen in March, in fact, may reflect a lack of liquidity in the underlying market. Link
Years of poor performance have caught up with multi-factor funds, with more closing than launching this year for the first time in the sector’s 17-year history. According to data from Morningstar, a record 27 multi-factor exchange traded and mutual funds closed in the first nine months of the year far outstripping the 16 launches.
Between 2014 and 2019 the number of multi-factor funds globally had jumped from 62 to 305, the bulk of them ETFs. Assets, which surged from $7bn to $69.3bn 12 months ago, have since slipped to $65bn after record outflows in the first six months of 2020. Link
Five investment advisory firms recently settled with the SEC over charges that representatives invested client money in unsuitable exchange-traded products linked to market volatility. Representatives at these firms were advising clients to invest in these products for a long-term time horizon, which posed a greater risk for reduced returns, according to the complaints. The charged firms will be returning more than $3 million to harmed investors. Link
Tesla is set to be added to the S&P 500 for the first time in December in a move that could see $51bn inflows into the electric vehicle manufacturer from index funds and ETFs. Effective when the next quarterly rebalance takes place on 21 December, Tesla will be one of the top 10 biggest companies in the S&P 500 with a market cap value of $400bn. Link
Notional volume executed on the Tradeweb European-listed ETF marketplace reached EUR32.8 billion in October, according to the company’s latest Exchange-Traded Funds Update.
Adriano Pace, head of equities (Europe) at Tradeweb, says: “In October we saw more than 53,900 transactions in European-listed ETFs, our highest number since March, when platform activity exceeded EUR 80 billion. Three-quarters of these transactions were completed via our Automated Intelligent Execution (AiEX) tool, in line with recent months.” Link
UK government announces equivalence between UK and EU benchmark regulations. The UK government has said benchmark administrators can have their benchmarks used within the UK with only a notification requirement to the Financial Conduct Authority (FCA) needed.
As a result, benchmark administrators from the European Economic Area (EEA) do not have to carry out the complex process of applying for recognition or endorsements that need to be approved in the UK. Link
A fight for control has broken out at one of the biggest success stories in the exchange-traded fund world this year. Cathie Wood, head of Ark Investment Management and manager of the Ark Innovation ETF (ARKK) — which almost doubled this year — is combating a move from Resolute Investment Managers to purchase a controlling stake in her company, according to a regulatory filing. Resolute, which helps distribute mutual funds and ETFs including Ark’s products, acquired a minority investment in Ark in July 2016 and the option to purchase a controlling voting and equity interest, which is exercisable in early 2021.
Her flagship fund ARKK has attracted almost $5.8 billion this year and has soared more than 180% from its March lows. It also crossed $11 billion in assets after its 37th week of inflows. Link
US regulators have issued a stern warning to broker dealers and financial advisers to stop selling “unsuitable” volatility-linked exchange traded products to retail investors. The harshly worded statement has been released by a division of the SEC following the announcement that five companies had been ordered to repay a combined total of more than $3m to retail investors harmed by the products. Link
MSCI confirms Kuwait EM upgrade effective 30 November. KMEFIC FTSE Kuwait Equity UCITS ETF (KUW8) estimates that the MSCI’s reclassification of Kuwait indices from frontier market status to emerging market on 30 November could see around USD10 billion of asset flows into Kuwaiti stocks.
Boursa Kuwait have recently predicted USD2.9 billion from passive investments and industry research has estimated that around USD8 billion of this new investment could come from active strategies. In total, seven large cap and 14 small cap Kuwaiti stocks will be included in the MSCI’s new Emerging Market Standard Index. Link
Hopefully, you caught Mike’s insightful ETF Stream article on the changing Distribution landscape. If not, take a look here.
Thanks for reading.