ETF inflows surge past record as investors bet on global recovery

The exchange traded fund industry has made its fastest ever start to a year with a new record of $139.5bn in monthly inflows in February as investors, betting on a strong economic rebound in 2021, used ETFs to pour cash into equities.

Not only did the S&P 500, the main US stock market benchmark, hit a fresh all-time high last month, but investors have also taken encouragement from the massive support measures provided by the US Federal Reserve and other central banks to make additional allocations to stocks and commodities via ETFs.

February’s record haul for the ETF industry was up 5.7 per cent on the previous best month for new business at $132bn set as recently as November, according to ETFGI, a London-based consultancy.

“The ETF industry has now registered a monthly record for new inflows for a second time in just four months,” said Deborah Fuhr, founder of ETFGI. 

Investors worldwide have allocated $222.5bn in new cash to ETFs in the first two months of 2021, more than double the same period last year when equity markets globally were undergoing a sharp correction due to fears about the damaging impact of the coronavirus pandemic.

Pennsylvania-based Vanguard has surged into an early lead in the race among managers to win investors’ cash with ETF inflows of $63bn in the first two months of 2021, up 48 per cent on the $42.6bn it gathered over the same period last year.

BlackRock, the world’s largest asset manager, has registered inflows of $42.3bn so far this year into its iShares ETF unit, up from $30.4bn in the first two months of 2020. 

Ark, the $51bn New York-based boutique that specialises in bets on disruptive technology companies such as Tesla, ranks as the third fastest growing ETF provider with net inflows of $16.1bn so far this year, catching up rapidly with the $20.5bn of new cash it gathered over the whole of 2020.

“The strong inflows for Ark have helped to push global assets in actively managed ETFs beyond the $300bn milestone,” said Fuhr.

Ark is outgunning far larger competitors, which have also seen an encouraging pick-up in ETF flows. State Street Global Advisors has registered positive inflows of $6.8bn over January and February combined compared with withdrawals of $25.6bn in the first two months of 2020. New business for Invesco’s ETF arm has jumped to $11.9bn from $0.6bn in the same period last year and JPMorgan’s global ETF flows have increased to $6.6bn from $1.6bn.

The yield on US government 10-year bonds has increased from 0.9 per cent at the start of this year to 1.6 per cent, reflecting growing investor confidence about the outlook for the US economy in 2021. That has also translated into stronger inflows into cyclically orientated US sector ETFs.

US financial ETFs attracted net flows of $4.9bn in February on top of January’s $5.9bn. US energy sector ETF registered net flows of $3.2bn, up from $1.3bn. US real estate sector ETFs added inflows of $2.5bn after seeing outflows of $0.2bn in January. US consumer discretionary ETFs registered net inflows of $1.7bn last month, up from $200m in January.

Matthew Bartolini, head of Americas ETF research at State Street Global Advisors, noted that US sector ETFs, which track the 11 main categories of the US stock market, have also made their best start ever to a year with combined inflows of $21bn over January and February.

More evidence of investors’ appetite for cyclically sensitive stocks was demonstrated by US small-cap ETFs seeing inflows of $7bn in February on top of January $5.4bn, according to State Street. 

Meanwhile, ETFGI data showed that broad commodity ETFs have gathered global inflows of $3.2bn so far this year, boosted by sharp increases in crude oil and copper prices — a trend that also points to rising confidence in global economic recovery in 2021.

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