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Record year for ETFs as actives take beating

Exchange traded fund listings on the London Stock Exchange reached a record high last year, mirroring investors’ cautious outlook for 2019.

The Financial Times reports a total of 323 ETF products, including commodities and exchange traded notes, were listed on the LSE in 2018.

ETFs –  low-cost listed funds that look to hug the benchmark rather than outperform it – are steadily gaining investor confidence as market uncertainty derails interest in active investments.

Volatile stock markets last year saw heavy outflows from active funds, while UK investors pulled more than £2bn from open-ender funds, including index tacker funds, in November alone.

Behind the numbers: Thematic ETFs on the rise and fees staying high

More broadly, Investment Association data shows passives made up almost half of all global equity assets under management last year.

Around £4.6trn is estimated to be currently held in ETF assets globally, the IA adds.

Equity funds notably struggled in 2018 in what was a year of continuous outflows from active funds. However, more than £3bn flowed into UK ETFs in October and November last year.

Investment Uncovered: How ETFs will transform the future of wealth management

Legal and General Investment Management, which manages nearly £1trn of assets globally, flagged plans to bring 20 new ETFs to the market by early 2019, while JP Morgan hired a specialist ETF distribution team last year looking to bolster passive investments in Europe.

ETFs that prioritise environment and social targets are also continuing to build momentum in the market.

Money Marketing previously reported 31 ESG ETFs holding nearly £4bn in assets under management entered the market between January and May 2018.

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. So trackers did bet than actives. Poor clients. The trackers followed the indices which plummeted. A good spread of decent actives didn’t fall nearly as far. Good actives might not always match a tracker in strongly rising markets, nor will the follow a tracker in strongly falling ones.The FTSE All World fell by 12%, Eurotop by 13% and the UK All Share by 12.5%. So it was by no means possible for actives to fall less or even make modest gains. (Lindsell Train IT -77% invested in UK actually MADE gains of 44.5%)

    Their main advantage is that uninformed and lazy advisers have a get out – ‘It wasn’t us guv. it was the market’.

  2. At this point its worth noting that Lifestrtaegy offered some protection versus active funds against market falls in 2018. Index funds did not “plummet” nearly as much as active funds:

    Vanguard Lifestrategy 20% Equity -1.14% (1st quartile & 8th out of 84) – Average fund -3.29%

    Vanguard Lifestrategy 40% Equity -2.25% (1st quartile & 13th out of 202) – Average fund in sector -5.08%

    Vanguard Lifestrategy 60% Equity -3.10% (1st quartile & 28th out of 291) – Average fund in sector -5.89%

    Vanguard Lifestrategy 80% Equity -4.04% (1st quartile & 59th out of 291) – Average fund in sector -5.89%

  3. If everything was in trackers then there would not be a functioning market. I wonder at what point the percentage of assets in trackers start to have an inappropriate impact on prices? Tail wagging the dog?

    Or put it another way, what percentage of assets in active funds is required to maintain prices at a point where the price truly reflects the value?

    I seem to remember some research being done a few years back on the effect of derivatives on the underlying assets but has anyone done the same for trackers?

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