A volatile year marked by falling markets, rising inflation and surging interest rates hit the global exchange traded-fund industry, pushing annual net inflows 33% lower, a survey found.
Global ETF’ inflows fell to $856.16 billion last year from $1.29 trillion in 2021, London-based research firm ETFGI reported this week. Last year’s number was the highest level of annual net inflows to be recorded. Assets invested in the ETF industry also dipped 10.1% year to date in 2022, jumping from $10.26 trillion at the end of 2021 to $9.23 trillion, the report found.
“The war in Ukraine, inflation, uncertainty around central banks and interest rates prolonged COVID restriction and—not to mention—political instability in countries like Italy and Brazil” hurt the industry, ETFGI’s Founder and Managing Partner Deborah Fuhr told ETF.com. “There are a large number of challenging things happening as a backdrop to the investing landscape.”
The U.S. ETF industry likewise struggled, as new fund launches fell 9.6% over the past year, from 477 launches in 2021 to 431 launches in 2022, according to ETF.com data. Furthermore, fund closures nearly doubled, rising to 145 from 79 in 2021.
“2022 was a challenging year for ETFs in terms of performance,” CFRA’s Head of ETF Data and Analytics Aniket Ullal told ETF.com. “The only major asset class where ETFs had strong performance was diversified commodities, with ETFs indexed to bonds and major equity indices experiencing significant declines.”
However, despite the challenging markets, U.S. ETFs brought in $614 billion in 2022, according to ETF.com data—a figure largely driven by investors rotating out of traditional mutual funds, Ullal said. More than $42 billion in ETF assets were from converted funds last year, CFRA data shows.
From a global standpoint, the ETF that gathered the largest individual net flow in 2022 was the iShares Core U.S. Aggregate Bond ETF (AGG), with $2.78 billion, followed by the Vanguard Total Stock Market ETF (VTI), with $2.53 billion, according to ETFGI data. Both are U.S.-based funds.
“Looking ahead to 2023, it is likely that ETFs will continue to see strong inflows, possibly between $750 billion and $1 trillion,” Ullal added, noting that ETF performance is poised to rebound in the next year despite the possibility of a recession, given current valuations, especially in fixed income.
ETFs have also cemented their status as a preferred investing vehicle—especially for retail investors—replacing buying individual securities and mutual funds, according to Fuhr.
“I still think the ETF industry has a lot of room to grow on a global basis, and in the U.S.” she said.
Contact Zoya Mirza at [email protected]