Assets in BlackRock’s ETF business crossed the $3 trillion mark for the first time in May, as the global assets of the ETF industry soared to an all-time high above $9 trillion.
BlackRock last week forecast that the assets of the ETF industry will reach $15 trillion by the end of 2025, helped by increased demand for green strategies and more use by debt investors.
ETFs currently account for just 3 percent of assets held in the stock and bond markets globally, according to BlackRock.
“Decades of growth await ETFs,” said Salem Ramji, global head of iShares and index investments at BlackRock.
The record rally on Wall Street since April 2020 and strong gains for other stock markets have generated new business for the ETF industry as the two main competitors, BlackRock and Vanguard, battle a fierce price war.
Investors worldwide poured nearly $97 billion into ETFs in May across both funds and products, taking net inflows to $559.3 billion so far this year — on track to surpass the 2020 record of $762.8 billion, according to Preliminary data is from ETFGI, a London-based advisory firm.
BlackRock’s iShares ETF arm earned $123.7 billion in net inflows in the first five months of this year, compared to $37.4 billion during the same period in 2020 when investor confidence was hit by the escalating coronavirus pandemic.
Pennsylvania-based Vanguard Group has attracted $161 billion in ETFs so far in 2021, more than double the $66.2 billion recorded between January and the end of May last year. About $5.2 billion in US ETF flows from Vanguard so far this year have come through an arrangement that allows clients to convert an existing mutual fund into an ETF.
The global shift over the past decade to low-cost ETFs that follow broad-based benchmarks, such as the S&P 500 or FTSE 100, has created intense pressures across the investment industry, resulting in mergers and acquisitions as small competitors scramble to respond to the growing power of BlackRock and Vanguard.
“We are seeing a fundamental transformation with the growth of ETFs that will lead to significant changes across the investment industry globally,” said Deborah Faure, founder of ETFGI.
Patrick Davitt, an analyst at Autonomous Research, said ETF penetration could become “significantly higher” both in Europe and Asia as well as across bond markets, challenging traditional active fund managers.
It is a very difficult task for active stock managers [due to their inconsistent performance and higher fees] To earn meaningful flows in exchange for ETFs. Traditional actively managed bond funds will also face more competition from ETFs.”
The assets of the ETF managed by State Street Global Advisors crossed the $1 trillion mark in April. The Boston-based investment manager, the third-largest player in the ETF after BlackRock and Vanguard, has recorded $32.9 billion in inflows so far this year, up from $19.3 billion in the first five months of 2020.
“The entire ETF ecosystem is getting stronger” as adoption spreads more widely outside the US and usage grows across a wide range of trading and advisory platforms, said Rory Tobin, global head of State Street ETFs.
“The growth trends in Europe are very encouraging and we have just scratched the surface for ETF adoption across Asia,” Tobin said.