The U.S. markets continued their monthly gains in August where we covered the S&P 500 Index doubling from its pandemic lows. We have seen almost 20% year-to-date (YTD) returns from the U.S. large-cap indexes in 2021 – despite concerns about rising inflation, Fed tapering talks and the possible impact of the COVID-19 Delta variant. The gains are visible in the U.S. ETFs too. Most of the growth in ETFs is seen in the U.S. while Europe and the Rest of the world took longer to catch on. At the end of 2020, the North American ETF assets totalled about $5.6 trillion and BlackRock, Vanguard and State Street were the top three ETF providers based on the assets managed. Blackrock seems to be the largest ETF provider with Assets Under Management (AUM) amounting to approximately $2.3 trillion as of June 2021.
Exhibit 1: Largest ETF providers in the U.S. as of June 2021 by AUM (in $ billions)
Data as of July 2021| Source: Statista.com, Note* iShares ETF is managed by Blackrock which acquired the brand from Barclays in 2009.
Trend: Investors move towards passive funds in 2021
Investors have moved trillions of dollars in the past couple of years from active investment strategies which mostly involve selecting assets that can outperform a benchmark to ‘passive’ or ‘indexing’ strategies which mostly try to replicate a benchmark. The shift from active to passive funds appears to have resumed in 2021, and this trend has been evident in ETFs too. The graph below shows the rising share of passive vs. active funds coming from strong inflows into passive funds rather than outflows from the active funds. This shift to passive investing could be mostly due to several factors including effects on asset prices and increased volatility of the fund, market liquidity, price discovery, industry concentration, competition, corporate governance issues to name a few.
Exhibit 2: Active vs. passive funds trend among the U.S. funds (2000-2021YTD)
Data as of August 2021| Source: Flowbank.com
Key highlights of growth in U.S. ETFs and ETPs
- The ETFs and ETPs listed in the U.S. had a record inflow of $6.60 trillion and $523.89 billion respectively at the end of July 2021.
- ETF Assets have increased 20.8% YTD in 2021, up from $5.47 trillion at the end of 2020 to $6.60 trillion as of July 2021.
- Record YTD 2021 net inflows of $523.89 billion up from the prior record of $490.19 billion of net inflows seen in 2020, of which Equity ETFs and ETPs listed in the U.S. recorded $360.79 billion in net inflows YTD 2021.
Exhibit 3: U.S. Listed ETFs and ETPs as of July 2021
Data as of August 2021| Source: ETFGI.com
Vanguard and iShares have been some of the largest ETF issuers YTD 2021
The chart below gives a summary of the ETF flows by the issuer. In 2021 (pink bar), Vanguard has already broken the all-time record flows with still four months to go for 2021 where they have raised almost a quarter of a trillion dollars in Assets Under Management (AUM) so far (by the end of August 2021). The chart shows how dominant these large players like Vanguard and iShares are in the ETF industry.
Exhibit 4: Annual ETF flows by the issuer (2010 – 2021 YTD)
Data as of the end of August 2021| Source: Bloomberg.com
Note* SSGA is State Street Global Advisors, iShares is managed by Blackrock
Equity-based ETFs have had their best performance among various asset classes over the last 10 years and YTD 2021
When we look at the total returns of several asset classes of ETFs for the last 10 years (chart below), Bitcoins is once again leading all major asset classes in 2021 with a return of over 67%. It’s also worth noting that 65% of all asset classes in the ETFs are in positive territory year-to-date (YTD). Equity-based ETFs are still very strong with US Nasdaq 100 (ETF) gaining about 20% YTD 2021, and 666% cumulative returns over the last 10 years. The Fixed income ETFs and Gold ETFs are negative for 2021 YTD. Subsequently, Commodity ETFs had their best year over the last 10 years in 2021 with a return of 30.6% YTD 2021 (at the end of August 2021).
Exhibit 5: Total returns of different asset classes of ETFs last 10 years
Data as of the end of August 2021| Source: CharlieBilello.com, YCharts.com
Additionally, inflows into the ETFs can be attributed to the top ETFs by net new assets (NNA) as of July 2021. The chart below shows some of the top U.S. listed ETFs with higher Net New Assets in July 2021 and YTD 2021.
Exhibit 6: Top U.S. Listed ETFs by Net New Assets (NNA) as of July and YTD 2021
Data as of 15 Sept 2021| Source: ETFGI.com, ETFDatabase.com
Exhibit 7: Best performing ETFs during first-half of 2021
Source: Yahoo Finance
Note* Data measures total returns for the YTD period until June 2021
ETFs are likely to gain from renewed market optimism during the second half of 2021. Investors are relieved after Fed Chairman Jerome Powell’s Jackson Hole speech that there is no hike in interest rates in the near term (at least until the end of 2021). However, the Fed seems to have prepared the markets for a tapering of its monthly bond purchases of $120 billion this year. Additionally, investors also seem to be upbeat about the chances of peaking delta variant of the virus, nonetheless, the full U.S. FDA approval is likely to increase the confidence for imposing vaccine mandates which are some of the near-term positives for the U.S. markets and the ETF industry as a whole. On Stockal, we have seen a lot of attention from Indian investors to the ETFs listed on our platform and across various asset classes. (Equity ETFs, Index ETFs, Sector ETFs and Bond ETFs).