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What made 2013 a record year for ETFs?

by Robert St George on Jan 21, 2014 at 09:43

What made 2013 a record year for ETFs?

That 2013 was a better year for investors than 2008 won’t surprise many. But until last year, 2008 boasted the dubious honour of having enjoyed the strongest flows into equity exchange traded funds (ETFs) on record.

Six years ago, equity ETFs worldwide swelled by more than £120 billion. That was their best ever 12-month period until 2013, when they attracted over £150 billion, according to the latest data from BlackRock.

By region, the most popular were US equity ETFs, which took in £90 billion. The next biggest winner, Japan, gathered £23 billion. European equity products took in £16 billion, more than twice what they managed in 2012. Emerging market ETFs, in contrast, dwindled by £6 billion.

Across all asset classes, ETFs had a good year but not a record one. In total, 2013 brought them £143 billion, slightly below 2012’s £160 billion but still healthily ahead of the £106 billion registered in 2011.

Equities clearly accounted for the bulk of last year’s new money, but perhaps surprisingly, fixed income was not a net detractor.

While flows did collapse from 2012’s £43 billion to £17 billion, that is respectable for a year in which the ‘great rotation’ entered the financial lexicon. The aggregate positive number, though, is solely attributable to the £22 billion that entered short-duration bond ETFs.

So rather than fixed income, the real drag on the headline figure for 2013 was gold. Gold ETFs shed an immense £24 billion last year, offsetting all their asset gains through the prior three years combined. That said, gold ETFs still contain £41 billion of assets. The largest, SPDR Gold, almost halved in size through 2013 but is still among the world’s largest ETFs at £19 billion.

More encouragingly, 2013 was a record year for smart beta. Some £40 billion, the highest amount ever and equivalent to almost a third of all inflows last year, was allocated to what BlackRock calls ‘strategic beta equity’, which it defines as non-market cap weighted indices.

Among these strategies, those emphasising income were heavily favoured for the second year in a row. Dividend-weighted funds reaped an almighty £18 billion in 2013, up from £8 billion the year before.

The second most popular strategic beta play was minimum volatility funds, whose assets more than doubled to £8 billion.

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