Exchange traded funds make strongest ever start to a year

The exchange traded funds industry made its strongest ever start to a year with net inflows of just under $96bn in the first three months of 2015, a first quarter record.

First quarter inflows were more than double the $37.2bn recorded in the same period last year, according to ETFGI, a consultancy.

The ETF industry's best ever year was 2014, when investors ploughed a record $339.7bn into exchange traded funds and products.

The surge in ETF inflows will strengthen the hand of regulators pushing for tighter supervision of asset managers.

Last week, the International Monetary Fund said it was concerned that potential financial stability risks had increased as a result of the asset management industry's growth and structural changes in global financial markets.

BlackRock, the world's largest fund manager, has already established a substantial lead in the race for investors' cash. It had first quarter inflows of $38.8bn, compared with $9bn in the first three months of 2014.

Vanguard, the second-largest ETF provider globally, enjoyed first quarter inflows of $23.4bn, a 58 per cent increase.

State Street Global Advisors and PowerShares, the third- and fourth-largest providers globally, registered net outflows of $25.9bn and $0.4bn respectively as investors withdrew money from flagship ETFs tracking the S&P 500 and Nasdaq Composite stock market indices, which both hit all-time highs in the first quarter.

With the US Federal Reserve on course to raise interest rates this year for the first time since the onset of the financial crisis, four currency-hedged ETFs that offer protection against fluctuations in the US dollar were among the top-10 bestselling products of the year to date.

WisdomTree, the US provider, has seen inflows of just over $10bn into its Europe Hedged Equity ETF, the fastest-growing product so far during 2015.

Ursula Marchioni, head of ETP research at BlackRock, said strong demand for currency-hedged ETFs was likely to persist. "The consensus is the US dollar is in the midst of a strengthening cycle and these cycles have historically lasted for six to seven years," said Ms Marchioni.

She also highlighted the divergence between increasingly accommodative monetary policy in both the eurozone and Japan with that of the US Federal Reserve as playing a key role in shaping first-quarter ETF flows.

These comments were echoed by Deborah Fuhr, managing partner of ETFGI. She noted that European equity ETFs had attracted inflows of $37.8bn in the first quarter following the start of quantitative easing in January by the European Central Bank, fuelled in part by the $9.9bn that has been withdrawn from ETFs tracking equity indices across North America.

Japan-focused ETFs have continued to find support from the Japanese central bank's QE programme and further reallocations by pension funds to equities even as the Nikkei 225 stock market index approaches a 15-year high. Inflows into Japanese listed ETFs reached $10.6bn in the first quarter, up by more than a third from the first quarter of 2014.

Emerging market equity ETFs saw hefty redemptions of $12.6bn in the first quarter amid concerns that any further rise in the US dollar will hurt future returns.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation