What's Driving The Global ETF Industry?

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Includes: AGG, BND, EFAV, LQD, USMV
by: Zacks Funds

Amid continued volatility in the oil price and the instability in the stock markets, assets invested under global ETFs/ETPs touched an all-time high of $3.138 trillion in April. While equities failed to impress the ETF space, fixed income led the way.

As per data from ETFGI's April 2016 global ETF and ETP industry insights report, the Global ETF/ETP industry had a whopping 6,297 ETFs/ETPs from 283 providers on 65 exchanges at the end of April 2016. As per the report, inflows were witnessed across the globe with record levels of assets being gathered in the U.S. ($2.217 trillion), Canada ($77.42 billion), Europe ($533.34 billion), Japan ($145.93 billion) and other countries in the Asia-Pacific region ($125.21 billion).

In April, global ETFs/ETPs witnessed net inflows of $10.13 billion, led by fixed income ETFs/ETPs which gathered the largest net inflows with $7.73 billion. This is not surprising considering the upcoming U.S. election, Brexit vote and the impact of quantitative easing across the globe which have ruffled investors.

Below, we have discussed a couple of areas which saw the highest inflow last month.

Bond ETFs

Record flows in bond ETFs could be attributed to the low-yield environment in most developed markets across the world. Disappointing macroeconomic data, global market turbulence and threats to the stability of the U.S. economy have been making headlines since the beginning of the year, leading to volatility across all asset classes. Because of these factors, bond ETFs have lately gained a lot of popularity as investors continue to look for attractive and stable yield in this ultra-low rate interest environment.

In fact, these uncertainties led the central bank to lower the number of hikes and the projected federal funds rate this year. It now expects the federal funds rate to rise to 0.875% by the end of the year, instead of the previously expected 1.375%, implying only two rate hikes as compared to the four projected in December. The double blessing of easy monetary policy globally and a delayed rate hike in the U.S. made fixed-income securities a winner in the month, as investors scurried to safer assets.

Funds which saw maximum inflows were the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEARCA:LQD) - $1.2 billion, the
Vanguard Total Bond Market ETF (NYSEARCA:BND) - $834.3 billion and the iShares Core Total U.S. Bond Market ETF (NYSEARCA:AGG) - $829.6 million.

Minimum Volatility ETFs

With mixed data flowing in from various quarters and widespread fear among investors about the direction of the market, it's not surprising that investors are looking to follow a proper trading strategy which ensures stability. With that in mind, investors sought low volatility ETFs with funds like the iShares MSCI USA Minimum Volatility ETF (NYSEARCA:USMV) and the iShares MSCI EAFE Minimum Volatility ETF (NYSEARCA:EFAV) witnessing inflows of $1.2 billion and $601.2 million, respectively.

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