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Exchange Traded Funds: Q3 2021 Market Overview

27 October 2021

Year to date global ETF flows have now comfortably exceeded the previous record from last year with current 2021 inflows at $883 billion (2020's total was $712 billion). A slight downward trend continues in Q3 with total net new assets of $254 billion, in contrast with the massive $349 billion recorded at the start of the year. It is however important to note the influence of the vaccine rollout on investor bullishness at the start of the year and the lack of volatility in US focused flows* over the past three quarters ($176, $168, $160 billion), indicating that the ETF market is still in a strong growth period.

There are no major surprises in the largest inflows for individual ETFs this quarter, Vanguard FTSE Developed Markets ETF (VEA) comfortably takes the top spot with $17.5 billion despite a lacklustre quarterly return, a good example of the sometimes lack of relationship between fund flows and performance. The second and third largest flows are taken by S&P 500 trackers in Vanguard S&P 500 ETF (VOO) and SPDR S&P 500 ETF (SPY). iShares TIPS Bond ETF (TIP) also appears in the top 10, a reflection of investor concerns over possible inflation acceleration in the near future. KraneShares CSI China Internet ETF (KWEB) also drew considerable flows with a much more focused investment objective than the rest of the top 10 that resulted in close to 50% AUM growth over Q3.

Within the largest outflows of this quarter are a couple of Gold focused ETFs in SPDR Gold Shares ETF (GLD) and WisdomTree Physical Gold ETF (PHGP); Value and Size focused ETFs also lose considerable AUM, whilst ETF iShares Edge MSCI USA Value Factor UCITS (IUVF), Xtrackers S&P 500 Equal Weight ETF (XDEW), iShares MSCI World Small Cap UCITS ETF (WSML) all feature as smart beta focused AUM shifts to alternative strategies.

New launches this quarter are dominated by Equity ETFs with Dimensional International Value ETF (DFIV) heading our list of notable launches, with $3.5 billion in AUM as Dimensional continues to convert index funds from the Mutual Fund to the ETF investment wrapper. APAC listed ETFs occupy the second, third, and fourth spots by $AUM, although notably with three different issuers listing in different countries.

This quarter is also notable for the appearance of higher volatility ETFs in our highest AUM new launches with Hashdex Nasdaq Crypto ETF (HASH11) and BMO MicroSectors FANG Innovation 3X Leveraged ETN (BULZ) both attracting considerable early flows. Three active funds of funds from Cabana ETFs are also notable appearances in the list demonstrating the increasing prevalence of 'non-vanilla' ETFs in 2021 as the industry continues to morph away from pure passive large market tracker funds.

*US focused investment strategies, not necessarily US listings

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Thomas Runciman, Product Manager, ETF and Benchmarking Solutions

Thomas.Runciman@ihsmarkit.com

IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.


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