Global investors piled into exchange-traded funds (ETFs) during the March quarter, putting pandemic panic aside in the rush to stock up on passive exposure to equities, a new BetaShares report says.
In its just-published quarterly review, the Australian ETF manufacturer says while the total asset value slumped 16 per cent in the three months to March 31 as markets tanked, the sector experienced net inflows higher than the same period last year.
“Global inflows into ETFs for the quarter were ~US$119B, compared to ~US$99B for Q1 2019,” the BetaShares report says. “~US$20B of these inflows came in March as the market was suffering significant falls.”
The positive flows into ETFs contrasted with the unlisted managed fund market, which saw net outflows in the March quarter of close to US$300 billion, mostly from active strategies.
“Investors also demonstrated a marked preference for passive strategies during the quarter, with ~US$54B flowing into passive investments, while ~US$265B was withdrawn from active investments,” BetaShares says. “The ~US$60B that flowed into passive ETFs represented 95% of total fund inflows into ETFs.”
And share ETFs were a clear favourite for investors both in the month of March, when global equities plunged almost 30 per cent at one point, and over the quarter.
“During March, global equity ETFs gathered net inflows of ~US$31B, while fixed income ETFs reported outflows of ~US$27B for the month. For the quarter, global equity ETFs received net inflows of ~US$69B, nearly double the ~US$36B received in Q1 2019,” the report says. “By contrast, global fixed income ETFs took in ~US$9B for the first quarter of this year, massively down from net inflows of ~US$56B in Q1 2019.”
The report – authored by BetaShares head of strategy, Ilan Israelstam – also notes the huge spike in ETF trading volumes globally over the first three months of 2020 that saw total transaction values on the US market up about 600 per cent on the previous quarter.
“In the four weeks from 23 February 2020, ETFs accounted for 37% of all trading activity on U.S. exchanges, compared to an average of 27% in 2019,” the BetaShares article says.
Australian ETF trading, too, hit an historical high in March of about A$18 billion, more than double the previous record of A$7.2 billion clocked up only in February. As reported here, the NZX-owned ETF provider, Smartshares, also experienced manic trading in March including a 10-times jump in fund-switching behaviour.
But along with the surge in trading volumes, the global ETF industry could be entering a phase of product rationalisation. BetaShares says 72 ETFs listed in the US (which represents about three-quarters of the total global sector) holding a collective US$1.4 billion shuttered in the March quarter – the highest rate of product closures in almost two years. As at the end of 2019, about 7,000 ETFs were listed on world markets, compared to just under 2,000 10 years previously when BetaShares launched.
At last count, BetaShares, part-owned by South Korean firm Mirae Asset Global Investment Group, managed about A$10.5 billion across almost 100 ETF products. The firm is also exploring options to expand in NZ.