Beyond Bulls & Bears


ETF 2021 Year-End Report Card: The Grades Are in!

As another year of living with COVID-19 draws to a close, David Mann, Head of Global Exchange-Traded Funds (ETFs) Capital Markets, looks back on how the industry has fared in 2021—and how his prior predictions have unfolded.

The more things change, the more they stay the same. I would like to think that 2021 was better than 2020; however, I am still crafting these blogs from my house as COVID-19 stubbornly remains in the news. Hopefully everyone is staying safe and healthy and can find time to have a relaxing holiday season! Now on to business.

Last year, I was amazed that the ETF industry brought in almost $500 billion of net inflows. Well, 2021 blew that number out of the water! With a little over a week to go in the year, the net ETF inflow number stands at $860 billion in the United States.1 Impressive! In 2022, I might be writing about our first $1 trillion year! As to how those flows impacted my 2021 predictions, read on.

Prediction #1:  ETFs that hold international equities will account for over 50% of 2021 equity inflows.

Rating: C+

When I last checked back in July, this number was at ~40%. My confidence in the pick was running high! Unfortunately, there were a ton of flows into ETFs that hold US equities over the last six months. The final percentage of equity flows that came from ETFs holding international stocks was 32%.2

Despite nearly $200 billion flowing into international equity ETFs over the past 12 months, the percentage was lower than I expected because of all those domestic equity flows. In hindsight, I would have been far more accurate predicting a net inflows number instead of a percentage. The overall spirit of the prediction still stands—very strong flows into international equity ETFs. I will give myself some credit for that with a C+.

Prediction #2: We will see even more smaller funds make an even bigger AUM leap.

Rating: B-

I predicted that 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. I knew this was a bit of a stretch goal but liked the trend we were seeing with investors embracing funds irrespective of their AUM or volume. Unfortunately, that number came up a little short as ultimately there were seven funds in 2021, slightly less than half of our predicted amount.3 Although many funds were on track when I checked back in July, most did not cross the $1 billion milestone. Consistent with years prior, the largest ETFs continued to attract the most inflows in 2021.

Prediction #3: Active ETF assets will reach $250 billion.

Rating: A!

As noted in the summer check in, I was far too conservative with our prediction on this one. Some stats:

  • Total active ETF AUM is currently ~$290 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 had $84 billion of inflows in 2021, representing 10% of the year’s inflows.

Even though the lofty mid-year prediction of $350 billion of active ETF assets was missed, the initial prediction of $250 billion was easily surpassed.4Active ETF flows remained very strong throughout the year, and their portion of total inflows was almost identical to that in 2020. As the “ETF rule” enters its third year and investors become even more comfortable getting their active exposure via the ETF vehicle, I anticipate even more market share for active ETFs in 2022.

In summary, there is always room for improvement, but not terrible. One day I will get those elusive straight A’s.

Stay tuned for my 2022 predictions coming soon!

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.

Important Legal Information

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.

Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Data from third party sources may have been used in the preparation of this material and Franklin Templeton (“FT”) has not independently verified, validated or audited such data.  Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.

Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own financial professional or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.

Issued in the U.S. by Franklin Distributors, LLC, One Franklin Parkway, San Mateo, California 94403-1906, (800) DIAL BEN/342-5236, – Franklin Distributors, LLC, member FINRA/SIPC, is the principal distributor of Franklin Templeton U.S. registered products, which are not FDIC insured; may lose value; and are not bank guaranteed and are available only in jurisdictions where an offer or solicitation of such products is permitted under applicable laws and regulation.

1. Source: Bloomberg, as of 12/21/21.

2. Sources:, FactSet as of 12/10/21.

3. Source: Bloomberg as of 12/20/21

4. Source: Morningstar as of 11/30/21

Get Content Alerts in My Inbox

Receive email alerts when a new blog is posted.