The amount of new money raised by exchange traded funds exposed to global stock markets has dropped 85 per cent in the first half of 2016, in a rare sign of pressure on the passive investment industry.
Equity ETFs that track an index attracted a net $15bn from investors in the first half of this year, a significant decline on the $102bn invested over the same period in 2015, according to ETFGI, the data provider. Investors turned their backs on equity ETFs because of volatile trading conditions in January and February, followed by concerns about the impact of the UK’s vote on EU membership, according to Ben Seager-Scott, director of investment strategy at Tilney Bestinvest, the wealth manager.
Billions of dollars were wiped off the value of global stocks at the start of the year as concerns mounted about slowing growth in China. Markets were also turbulent after the Brexit vote .
Deborah Fuhr, managing partner at ETFGI, said: “Investors are faced with a lot of uncertainty.”
Concern is growing about the strength of the passive industry. WisdomTree, the largest listed asset manager to exclusively sell ETFs, recently became the most-shorted investment house, indicating that investors expect its share price to fall. It is seen as a bellwether for the health of the ETF market.
Mr Seager-Scott said: “Investors [in ETFs] are moving to safety and inactivity. At the moment there is a view to not put money to work.”
According to ETFGI, ETFs that offered exposure to European equities were hit hardest, suffering outflows of $25.5bn in the six months to the end of June. This compared with net inflows of $51.8bn during the same period in 2015.
Demand for European equity exposure among international investors has also fallen because of concerns about the resilience of Italy’s heavily indebted banking system. Just $1.2bn was invested in ETFs focused on Asia-Pacific stocks, down 96 per cent on the $33.4bn invested in the first six months of 2015.
But emerging market-focused ETFs and those investing in North American stocks experienced greater inflows this year than during the same period last year. Total assets invested in ETFs and exchange-traded products rose to $3.2tn at the end of June 2016, because of strong flows into fixed income products.
Nizam Hamid, head of ETF strategy
at WisdomTree Europe, said while equity ETFs have had outflows, smart-beta funds — which act as a halfway house between active and passive management — have continued to attract new money.