Assets flooded into exchange-traded funds last year – even as stocks sank in December.
ETFs brought in a total of $314 billion, marking the first time the industry saw two straight years of more than $300 billion of inflows, according to a report from State Street Global Advisors. Investors added almost $213 billion to equity funds and just under $97 billion to fixed-income ETFs, with the rest going to multi-asset and alternative ETFs.
Investors continued to allocate to ETFs into December, with risk-off sentiment driving $16 billion into bond ETFs – their second highest monthly flows of all time, according to State Street. Still, stock market losses offset total inflows, paring the industry’s assets under management by less than 1 percent to $3.38 trillion.
Matthew Bartolini, the report’s author and the Americas-focused head of research for SPDR – State Street’s ETF business – expects that investors will continue to gravitate toward ETFs despite recent investment losses as a result of larger trends such the shift to indexing and the industry's lower fees.
“This trend is evidenced by equity strategies still taking in more than $200 billion on the year, with $34 billion even as the market was falling out of bed in December,” he wrote.
Within equities, investors largely preferred U.S. funds last year, adding $143 billion to ETFs tracking the country’s markets. Developed markets internationally attracted almost $50 billion, while emerging market ETFs brought in about $16.5 billion.
Sector ETFs fared less well in 2018, with investors pulling money from funds tracking financial, real estate, industrials, consumer discretionary, and energy stocks. The most popular sectors for ETF investors were technology and health care, which received $9.7 billion and $6.9 billion of inflows, respectively.
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Smart beta funds were also popular, attracting $39 billion in 2018, according to the report. Investors also contributed about $27 billion to value strategies, while withdrawing about $17 billion from growth funds.
The ETFs which received the most inflows as a percentage of total assets under management, however, were active funds. Actively managed ETFs amassed almost $28 billion in investor capital – an almost 60 percent increase in assets.
“Actively managed funds may be a growth area for the ETF industry,” Bartolini wrote.