As we are now officially past the halfway point for 2021, I thought it made sense to check in on our annual ETF predictions which were made back in January. Before getting to the predictions—wow!!! It has already been a monstrous year for the ETF industry, with $450 billion of inflows over the past six months!1 Compared to the $485 billion we saw for all of 2020, it looks like we are on track for another record year.
Prediction #1: ETFs that hold international equities will account for over 50% of 2021 equity inflows.
Not surprisingly, many of the largest low-cost ETFs that hold US equities are at the top of the 2021 flows leaderboard. However, ETFs that hold international equities are more than holding their own. For 2021, ~40% of ETF equity inflows have been into funds that hold international equities, up 10% from 2020.2
Is it too late to add another 10%? Given all the varying global perspectives on currencies, pandemic management, monetary policy, etc., we are going to stand by our prediction that we will get to 50% at the end of the year.
Prediction #2: We will see even more smaller funds make an even bigger AUM leap.
We predicted 15 funds that started the year with less than $200 million of assets under management (AUM) would reach the $1 billion milestone by the end of 2021. Although not a perfect measuring stick, we looked at how many of those eligible funds are more than halfway to that goal (>$600 million in AUM). Thus far in 2021, 10 of those funds are on pace to finish the year over $1 billion, with three of them already achieving that goal.3 I am banking on the usual fourth-quarter ETF activity push to get us those last five ETFs.
Prediction #3: Active ETF assets will reach $250 billion.
I may have been too conservative with my prediction on this one. Some stats:
- Total active ETF AUM is currently ~$263 billion, representing ~5% of total ETF AUM in the United States.
- Active ETFs had $55 billion of inflows in 2020, representing 11% of the year’s inflows.
- Active ETFs have already had $55 billion of inflows in the first six months of 2021, representing 12% of 2021 inflows.4
Goal achieved and we are only six months into the year! The total active ETF AUM is up almost $100 billion since the end of 2020. All of a sudden, $350 billion of active ETF assets by the end of the year is in play. We have certainly discussed active ETFs numerous times over the years within this blog. With that being said, I do have some thoughts on what is driving assets into active ETFs—stay tuned for a post on this topic soon!
In summary, not too bad! My first self-graded “A” is now very much possible! Check back in January 2022 for the final results.
What Are the Risks?
All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Generally, those offering potential for higher returns are accompanied by a higher degree of risk. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. For actively managed ETFs, there is no guarantee that the manager’s investment decisions will produce the desired results.
ETFs trade like stocks, fluctuate in market value and may trade above or below the ETF’s net asset value. Brokerage commissions and ETF expenses will reduce returns. ETF shares may be bought or sold throughout the day at their market price on the exchange on which they are listed. However, there can be no guarantee that an active trading market for ETF shares will be developed or maintained or that their listing will continue or remain unchanged. While the shares of ETFs are tradable on secondary markets, they may not readily trade in all market conditions and may trade at significant discounts in periods of market stress.
Actively managed strategies could experience losses if the investment manager’s judgment about markets, interest rates or the attractiveness, relative values, liquidity or potential appreciation of particular investments made for a portfolio, proves to be incorrect. There can be no guarantee that an investment manager’s investment techniques or decisions will produce the desired results.
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1. Source: Bloomberg as of 6/30/21.
2. Sources: ETF.com, FactSet, as of 6/30/21.
3. Source: Bloomberg, as of 6/30/21.
4. Source: Morningstar, as of 6/30/21.