Not the most surprising development in the exchange-traded fund (ETF) world, but notable all the same: ETF assets globally finally topped US$3 trillion at the end of May according to London-based research firm, ETFGI. Globally there are now 5,757 products from 256 providers on 62 exchanges in 51 countries.
May brought in net inflows of US$19 billion, led by a health flow of money into equity ETFs (US$20.8 billion) but dragged down by outflows from fixed income of US$1.5 billion and commodities, which lost $912 million. ETFs listed here in Canada gathered US$5.6 billion—a slight improvement over the prior record of US$5.5 billion.
But as ETFs reach a major milestone, a couple of other ETF stories last week showed a couple of shifts in the space.
First, gold ETFs, which just a few years ago were speedily gaining assets and hitting records of their own. May marked a different kind of milestone for gold ETFs as more than US$900 million flowed out of the world’s biggest physical gold-backed ETF—the SPDR Gold Shares (GLD)—dropping out of the top 10 and down to 11th place among gold-backed ETFs. As the Financial Times reported last week, assets in gold ETFs have been declining as gold prices tumble—prices have fallen nearly 40% this year. Even as uncertainty over Greece’s debt repayments continues.
As gold loses its lustre, another new area of the market is emerging as a portfolio staple among institutional investors—smart beta. Benefits Canada reports on a study from Invesco PowerShares—The Evolution of Smart Beta ETFs—which finds that smart beta indices are compelling for institutions because they use alternative security selection and weighting criteria.
That helps investors overcome big concerns over market cap weighted benchmarks.
Interestingly, though, smart beta ETFs accounted for more than 17% of total U.S. ETF equity inflows in 2014 even though they represent just 11% of institutional ETF assets. Thirty-six percent of institutional investors used smart beta ETFs, up from 24% in 2013, with the mean allocation rising to 13% from 7%.
Survey respondents described their motivation for using smart beta ETFs—performance (22%), volatility reduction (19%) and exposure to specific assets (15%).
As ETF assets hit new highs, the landscape is definitely changing. While the headline ETF story of a few years ago was gold, new investors are coming into the mix and they’re looking for new approaches and products. It doesn’t mean gold won’t shine again—but it does mean that the ETF playing field is becoming larger and more complex.