BlackRock’s iShares have clocked a trading volume of more than $7.3 trillion for its ETFs in the US and Europe in 2018, an increase of 42 per cent from the year before.
iShares also saw $81 billion in its global ETF flows for Q4, while attracting net global inflows of $168 billion, a third of industry net flows of $515 billion.
The Asia-Pacific region grew by almost 20 per cent in 2018, with iShares reporting strong demand (more than $5 billion in flows) for local products across Australia, Japan and Hong Kong.
“Our Asia-Pacific business has grown by more than 18 percent in 2018, with iShares client holdings surpassing $118 billion amid challenging market conditions,” said Susan Chan, head of Asia-Pacific iShares at BlackRock.
“Insurers are increasingly using ETFs to tactically seek alpha through asset allocation, accounting for nearly a quarter of iShares ETF AUM in the region.”
iShares said its results during a year of declines in stock and bond prices are indicative of the expanding usage of ETFs, both as investment vehicles and market tools.
“Last year showed the ever-growing versatility of iShares exchange-traded funds. Investors around the world used ETFs to seek alpha, help manage risk, invest sustainably, and tap liquidity in tighter financial conditions,” Mark Wiedman, global head of iShares and Index Investments said.
“ETFs are now established, natural parts of many investors’ portfolios.”
There was also a notable increase in adoption as proxies for its underlying securities, a trend that was particularly evident during periods of market stress, iShares also said.
Net new investments in its core strategies were reported to be robust in each region, with $106 billion taken in globally.
iShares factor strategies were strong, taking in $22 billion in 2018.
Flows into its sustainable ETFs reached $3 billion globally, which iShares says reflects investors increasingly seeking ways to combine their financial goals with environmental, social and governance (ESG) issues.
Sustainable iShares ETFs witnessed a 52 per cent organic growth rate in 2018 to $8 billion in assets under management.
BlackRock believes sustainable ETFs are at an inflection point, projecting assets under management (AUM) for the industry to reach more than $400 billion by 2028, from $25 billion.
Fixed income was said to be one of the fastest growing segments of the ETF market, iShares seeing its bond ETFs receive $51 billion in flows and $428 billion in AUM last year.
“Among market segments, the greatest share during 2018 went to short-duration and high-quality bonds, as investors globally sought to offset equity risk, generate income and hedge against rising rates,” BlackRock noted.
Industry flows into bond ETFs came to $131 billion globally, with a total AUM of $882 billion.
Based on an asset growth rate average of 20 percent annualized globally over the past five years, iShares projected that global bond ETFs could surpass $1 trillion by 2020.
In the US, flows into ETFs increased, even with sharp market declines at the beginning and end of 2018.
“Time and time again ETFs proved their mettle in 2018 as investors turned to iShares ETFs in volatile markets to act as market shock absorbers, providing liquidity and price transparency,” said Martin Small, head of US and Canada iShares at BlackRock.
“ETF trading, as a percentage of total equities traded, rose as high as 44 percent compared to the long-term average of 25 percent.”
Meanwhile, in Europe, trading volumes were almost at $2 trillion in 2018, with iShares capturing 35 per cent of industry flows.
European investors placed more than $1 billion into iShares’ sustainable ETFs last year, while the iShares thematic ranges reached almost $3 billion in assets.
Stephen Cohen, head of iShares EMEA at BlackRock, said ETFs and index funds make up about 10 per cent of portfolios on average in Europe, with the number set to increase to 50 per cent over the coming years.
“Across the region, technology and regulation are driving structural change in the form of cost sensitivity in the wealth industry and transparency of trading for institutional investors,” Stephen Cohen, head of iShares EMEA at BlackRock.
“These factors are intensifying investor scrutiny on the true drivers of return and the products best-suited to delivering client goals.”
He added investors are broadening how they invest, fuelling trends such as sustainable and thematic investing.
“These factors play squarely into the characteristics and choice afforded by ETFs and index funds,” Mr Cohen said.
The Asia ex-Japan market now represents more than half of iShares’ overall Asia-Pacific region. BlackRock added that institutional investors, such as pension funds, and family offices in the area represent the largest and fastest growing investor segments.
The firm expects momentum for ETFs will continue to build, with more uses being fuelled by demand from investors and advancements continuing in technology.
iShares maintains its prediction it made last year that global ETF assets could reach $12 trillion by 2023, citing macro forces including investors’ sensitivity to cost, transformations in the financial advice model, the evolution of fixed income platforms and an erasure of the distinction between active and passive investing.
“When flows and assets increase during periods of volatility and market downturn, it sends a powerful message: investors use iShares ETFs as liquid, low-cost, and transparent market access vehicles,” Carolyn Weinberg, managing director and global head of product at iShares, said.
“We have particularly seen significant flows into factors and fixed income ETF products from investors building more resilient portfolios.”
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