In this photo provided by the New York Stock Exchange, trader Ashley Lara works on the floor
ETFs currently account for 3 per cent of assets held in equity and bond markets globally, according to BlackRock © Nicole Pereira/New York Stock Exchange/AP

Assets in BlackRock’s exchange traded fund business raced beyond the $3tn milestone for the first time in May as the ETF industry’s global assets surged to an all-time high above $9tn.

BlackRock predicted last week that the exchange traded fund industry’s assets would reach $15tn as early as the end of 2025, helped by increasing demand for environmentally friendly strategies and more usage by debt investors.

ETFs currently account for just 3 per cent of assets held in equity and bond markets globally, according to BlackRock.

“There are decades of growth ahead for ETFs,” said Salim Ramji, global head of iShares and index investments at BlackRock.

Wall Street’s record breaking rally since April 2020 and strong gains for other equity markets have generated new business for the ETF industry where the two leading rivals, BlackRock and Vanguard, are competing in a ferocious price war.

Investors worldwide poured almost $97bn into ETFs in May across both funds and products, taking net inflows to $559.3bn so far this year — on course to surpass 2020’s record haul of $762.8bn, according to preliminary data from ETFGI, a London-based consultancy.

BlackRock’s iShares ETF arm has garnered net inflows of $123.7bn in the first five months this year, compared with $37.4bn over the same period in 2020 when investor confidence was damaged by the escalating coronavirus pandemic.

Pennsylvania-based Vanguard has attracted ETF inflows of $161bn so far in 2021, more than double the $66.2bn registered between January and the end of May last year. About $5.2bn of Vanguard‘s US ETF inflows so far this year have come via an arrangement that allows clients to convert an existing mutual fund holding into an ETF.

The global shift over the past decade into low cost ETFs that track broad benchmarks, such as the S&P 500 or FTSE 100, has created intense pressures across the investment industry, fuelling mergers and acquisitions activity as smaller competitors scramble to respond to the growing power of BlackRock and Vanguard.

“We are witnessing a tectonic shift with the growth of ETFs that will drive significant changes across the investment industry globally,” said Deborah Fuhr, the founder of ETFGI.

Patrick Davitt, an analyst at Autonomous Research, said ETF penetration could become “significantly higher” in both Europe and Asia as well as across bond markets, challenging traditional active fund managers.

“It is a very tough task for active equity managers [due to their inconsistent performance and higher fees] to win meaningful inflows against ETFs. Traditional actively managed bond funds will also face more competition from ETFs,” said Davitt.

ETF assets managed by State Street Global Advisors passed the $1tn mark in April. The Boston-based investment manager, the third-largest ETF operator behind BlackRock and Vanguard, has registered inflows of $32.9bn so far this year, up from $19.3bn in the first five months of 2020.

Rory Tobin, State Street’s global head of ETFs, said “the entire ETF ecosystem is becoming more powerful” as adoption spreads more widely beyond the US and usage grows across a wide range of trading and advisory platforms.

“The growth trends in Europe are very encouraging and we have only just scratched the surface for ETF adoption across Asia,” said Tobin.

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