Global inflows to exchange traded funds dropped by a fifth in 2018 after the first annual decline in the US stock market since the financial crisis dented investor appetite for low-cost index-trackers.
BlackRock, Vanguard, State Street and Invesco, the four largest ETF providers, all had sharp falls in sales.
Investors worldwide ploughed $516.1bn into exchange traded funds and products last year. This was down 21 per cent on the $653.6bn record set in 2017, according to preliminary data from ETFGI, a London consultancy.
The 2018 inflow still represents the second-best year on record for the ETF industry, which has attracted $3.3tn in new cash over the past decade, a tectonic shift that has generated huge pressure on the business models of active fund managers.
Matthew Bartolini, an ETF strategist at State Street Global Advisors, said 2018 had been a “rocky ride” for many investors as 45 stock markets registered declines.
“But the ETF industry continued growing in 2018 and taking share from active mutual funds that witnessed both negative returns and outflows,” he said.
Deborah Fuhr, the co-founder of ETFGI, said the ETF industry’s remarkable growth was continuing to attract new entrants and significant product innovation.
“We saw 49 managers enter the ETF industry for the first time in 2018 along with 877 products launched last year by 194 providers,” said Ms Fuhr.
BlackRock, the world’s largest asset manager, attracted new ETF inflows of $168.4bn in 2018, down 32 per cent on the previous year.
Meanwhile, trading volumes for BlackRock’s iShares ETF business in the US and Europe surged 42 per cent to $7.3tn.
Stephen Cohen, Emea head of iShares at BlackRock, said investors increasingly viewed ETFs as the most efficient way to invest.
BlackRock has forecast that global ETF assets could reach $12tn by the end of 2023, compared with the $4.8tn currently under management.
“More and better uses of ETFs will be fuelled by demand from investors looking for ways to access new exposures, achieve portfolio outcomes and make progress toward their long-term goals,” said Mr Cohen.
Vanguard, the closest rival to BlackRock, registered a 38 per cent fall in new ETF inflows to $92.5bn last year.
Both State Street and Invesco, the third and fourth largest ETF providers, struggled to match the pace set by others. State Street’s ETF inflows dropped 84 per cent to $6.6bn. Invesco, which has expanded via the acquisitions of Guggenheim’s ETF unit and Source, the European manager, gathered $6.8bn in new ETF inflows, down 56 per cent.
But Charles Schwab, the US financial services provider which has proved one of the most aggressive competitors in the ETF price war, enjoyed a 4 per cent rise in inflows to $28.5bn.