The global exchange-traded fund (ETF) sector headed back on track last year, recovering some momentum after the 2022 investment market crash derailed growth, a recent survey has found.
However, the study by specialist researcher, Trackinsight, shows ETF net flows increased only about 8.5 per cent year-on-year during 2023 to finish well off the historical peak and about half the long-term growth trend.
“In 2023, global ETF flows reached approximately $837 billion, falling short of the record set in 2021 at around $1.20 trillion, yet [$66] billion higher compared to 2022,” the Trackinsight report says.
But the ETF industry outpaced other managed fund structures during the 10 years to the end of 2023 as both institutional and retail investors boarded en masse.
“According to our data, the global ETF market experienced substantial expansion over the last decade, soaring from $2.61 trillion in 2014 to an impressive total asset value of $11 trillion in 2023, representing an annual growth rate of approximately 17.20%,” the survey says.
The Asia-Pacific region, though, has seen “significant volatility” in its ETF sector over the decade “with a peak of $98 billion in 2018 and a sharp rise in 2020, followed by a persistent decline to $41 billion by 2023”.
From its origins in the 1990s as a novel way to access simple broad equity market indices in passive listed vehicles, the ETF world has since expanded into a multiverse of almost 9,000 products spanning the gamut of investment desires.
“Asset managers have continued to expand the menu with new innovative strategies that cater to different market cycles and investor preferences,” the Trackinsight report says.
“By year-end 2023, the global ETF landscape (excluding other ETPs) had a total of 8,990 ETFs, up from 8,393 in 2022 and 5,738 in 2018.”
Nonetheless, the survey shows investor appetite for so-called ‘thematic’ ETFs has faded significantly following a COVID-era purple patch.
Last year, themed-ETFs reported net flows of just US$6.7 billion – less than half the 2022 figure – with net outflows for the sub-genre funds in the US.
At the same time, investor appetite for environmental, social and governance (ESG) ETFs evaporated in 2023, again in the US especially.
“Following a period of robust growth that culminated in 115 new [ESG] funds in 2021, North America witnessed a precipitous fall to merely 13 new launches in 2023,” the study says.
Overall, the North American market (representing 51 per cent of the global total) created 700 new ETFs last year while closing 333 products; in 2022 the respective figures were 525 launches and 179 aborts.
“Closures often result from factors such as inadequate assets under management, high fees, disappointing performance, and limited track records,” the report says.
“When compounded with the market challenges faced in 2022, some providers found it challenging to maintain their presence in 2023.”
The go-fast ETF industry, however, has already moved on into actively managed strategies, fixed income and – of course – bitcoin, as resurrected by a swathe of US funds listed this year after a reluctant regulator greenlit the products.
In a release, Philippe Malaise, Trackinsight chief, says the report findings “highlight the adaptability of ETFs to market changes and investor needs, reinforcing their essential role in contemporary investment strategies”.
Malaise says in the report that ETFs are also poised to emerge as the fund structure of choice, ultimately surpassing traditional unlisted products.
“Amidst the backdrop of the significant generational wealth transfer, there is a robust momentum in the adoption of ETFs, with a notable shift and increasing transition from Mutual Funds to ETFs,” he says. “The industry’s crossing of $11 trillion in global assets under management is a milestone that highlights the increasing trust and reliance placed in ETFs by investors worldwide.”
Trackinsight produced the study in association with JPMorgan Asset Management and State Street – both significant players in the ETF as fund operators and service providers.