The global exchange traded fund (ETF) industry is continuing to attract investor interest, hitting a record high of $3.2trn as of June 2016, with over $122bn in new assets this year.
A mid-year update to BMO Asset Management’s ETF Outlook 2016 report indicates that market volatility in 2016 has caused a spike in ETF volumes. The UK’s surprise vote to leave the European Union in June prompted the largest trading event for London listed ETFs, recording their highest value trading day ever. London listed ETFs had proved to be popular tools ahead of the Brexit vote; trading volume in June was 88% higher than the same month in 2015.
The report indicates that efficiency in trading ETFs quickly in the aftermath of a major global event was significant in driving ETF flows during this period.
Mark Raes, head of product at BMO Global Asset Management, said: “Recent market volatility has dovetailed with investor demand and the growing choice in factor-based ETFs. Investors are recognising the value of using ETFs both as long term holdings and as a trading tool to manage market uncertainty and take advantage of short term market movements.
“Global events, such as the Brexit vote, have kept volatility at the top of investors’ concerns. ETFs have proven their value as efficient and effective positioning tools that can help investors manage through market events. In Europe, we anticipate asset growth to accelerate as evolving regulation lowers barriers across individual markets,” he said.
The BMO report also notes a slew of new ETF issuers entering into the market – fabricating an increasingly diverse range of strategies. The number of global ETF providers rose by 15% over the past 18 months – from 239 to 284. The added competition in the ETF space has prompted innovation in order to create products that stand out in the marketplace.
In particular, investors have favoured income-weighted or quality-weighted ETFs to address their concerns around recent heightened volatility. According to the report, investors have been favouring ETFs targeting higher-yielding fixed income segments, as well as ETFs with exposure to companies offering attractive and sustainable dividend levels. Speciality ETFs and thematic exposures have also been popular amongst investors.