BlackRock Sees ETF Growth Amid Lackluster Markets

(November 9, 2011) — A new report by money manager BlackRock shows a slightly less stellar market for exchange-traded funds (ETFs) globally, largely due to the Eurozone sovereign debt crisis that triggered hefty losses in equities.

Yet, ETFs continue to gain momentum as a go-to place for gaining global access to the market, Kevin Feldman, Managing Director of BlackRock, told aiCIO.   

“ETFs are growing even though markets are down, but the growth pattern for ETF assets still shows strong demand,” Feldman said. According to Feldman’s recent research, the global ETF market is expected to grow by 10% to 15% in 2011, following previous estimates of growth ranging between 20% and 30%. Long-term, however, he noted that the that 20% to 30% growth rate is still anticipated. Meanwhile, world stocks — measured by MSCI — have declined nearly 7% year-to-date.

Investors are moving to riskier investments, such as equities and high-yield bonds, BlackRock found in its recent research. Among other findings, the firm noted that bonds continued to attract new money totaling $4.6 billion in October, with fixed-income being the only major asset class with a perfect record of inflows for every month during 2011.

Additional highlights of BlackRock’s findings: On a relative basis, investors in the United States were more optimistic about equity markets in October than European investors, who generally shifted less toward equities and more toward commodity products. 

Kevin Feldman, Managing Director of BlackRock commented: “Investors battled volatile market conditions during October. Poor sentiment in European bond markets and below expectation GDP growth from China was in part offset by generally better-than-expected US economic data and solid Q3 earnings. While flows into ETPs suggested a preference for safe haven assets in early October, this was overtaken by a decisive move to equity assets and high yield bonds later in the month. Flows during October demonstrate that the risk-on trade has definitely resumed.”

Further research by BNY Mellon and aiCIO‘s sister company Strategic Insight showed that assets in ETFs are projected to double to more than $2 trillion by the end of 2015. The report — titled “ETFs 2.0: The Next Wave of Growth and Opportunity in the U.S. ETF Market” — revealed that ETF assets grew by 28% to just more than $1 trillion in 2010, down from the 47% growth rate in 2009. Furthermore, according to the report, roughly half of the U.S. ETF assets are from institutional clients.

According to Loren Fox, senior research analyst at Strategic Insight and an author of the report, investors are increasingly willing to use ETFs following the global financial crisis as they are increasingly willing to pay more for innovative products that promise greater return and lower volatility.

“The next wave of growth for ETFs is being driven by new asset classes, new indexes and new ways to use ETFs as tools for portfolio construction,” said Joseph Keenan, head of global exchange traded fund services at BNY Mellon Asset Servicing, in a release. “The ever increasing sophistication of these newly created ETFs can pose operational and distribution challenges for asset managers. However, with detailed planning and a focused strategy, a variety of innovative exchange-traded products can be brought to market to effectively meet investors’ needs.”