2016: Big ETF Predictions

December 30, 2015

Big Predictions for 2016[This article originally appeared in our January issue of ETF Report.]

ETF Asset Flows To Hit Another Record

The ETF industry will attract record levels of fresh asset inflows in 2016. This is a call that’s pretty easy to make.

If you look at the past three years alone, investors have poured record-breaking levels of assets into U.S.-listed ETFs year after year. And with every passing year, more and more investors are turning to ETFs and finding that they are easy to trade, and are useful for everything from gaining market access, to diversifying exposure, to implementing tactical strategies, to managing taxes.

In 2013, ETFs gathered an impressive $188 billion in fresh net assets. That was a record year. In 2014, we saw an unprecedented $243 billion in net creations—a blockbuster year that cemented the ETF industry as the fastest-growing segment in financial markets.

And by mid-November, 2015 was on track to match—if not exceed—the previous year’s totals despite the muted performance of the U.S. stock market. We were already looking at some $200 billion in net inflows in the first 10 months of the year.

‘Secular Shift To ETFs’
“Despite generally higher volatility and lower returns in 2015, ETF assets have continued to grow at an impressive pace,” said Nick Colas, chief market strategist at Convergex, a global brokerage company based in New York. “Every asset class I track—stocks, bonds, currencies, commodities, etc.—show positive inflows this year. All this tells me that what we’re witnessing a secular shift to ETFs.”

This “shift” is marked by growing investor acceptance of the benefits and uses of ETFs. It’s also being helped by the proliferation of ETFs themselves, which in the U.S. now surpass 1,800 funds. Today if you think of an investing idea, chances are it’s already in an ETF wrapper somewhere.

In the first 10 months of 2015, issuers brought to market a record 238 new funds, and by mid-November, that number had grown to 253. With six weeks to go in the year—the time this article was written—2015 was already on the record books for the second-highest number of new launches in a year.

Another important factor in the rising demand for ETFs is the noteworthy endorsement of key money managers who are entering the ETF space for the first time. We’re talking about the likes of DoubleLine Capital, led by active manager Jeffrey Gundlach; John Hancock; Goldman Sachs (which had previously only launched ETNs); USAA; and even Kevin O’Leary of “Shark Tank” fame, who created O’Shares Investments to bring ETFs to market.

These major institutions and active managers just now entering the space bring with them hordes of loyal clients, who are following them into the world of ETFs for the first time. That’s a trend that’s in its infancy, but one that promises to deliver big in terms of asset flows in 2016.

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