ETF flows set new record

Massive demand for bond ETFs helped propel AUM over $4 trillion.

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Key takeaways

  • ETF assets under management (AUM) continued to hit new record levels in 2019.
  • Strong demand for both bond and stock ETFs drove that growth.
  • Gold ETF demand surged recently, as did gold prices.

Momentum behind long-term ETF asset growth persisted in 2019, as strong net fund flows (inflows minus outflows) for bond and stock exchange-traded funds (ETFs) helped push US-based ETF assets under management over $4 trillion in 2019. That's according to BlackRock's year-end Follow the Flow report.*

Here were the top trends last year in the ETF universe.

Another good year for ETF flows

Demand for US-based exchange-traded products (ETPs)—which are composed almost entirely of ETFs—has been particularly hot in recent years. After accumulating $308 billion in net assets in 2018—even as the S&P 500 suffered its first annual decline since 2008—US-based ETP assets under management grew another $335 billion last year. That’s the second highest annual total ever, behind 2017's record shattering $470 billion tally.

Fixed income (i.e., bond) led with nearly $150 billion in net flows, followed by US equity (i.e., stock) at $142 billion (see US-domiciled ETP flows chart).

Bond ETFs lead the way

A change of leadership occurred among fund flows as bonds outpaced stocks in 2019. Bond fund flows were driven primarily by broad market ETFs, with corporate bond ETF flows also representing a source of fund flow strength to the tune of $55 billion. Investment grade was the strongest component in the corporate bond category, at $37 billion in net flows. Amid 3 rate cuts by the Federal Reserve in 2019, US Government ETF flows were a consistent source of flows as well (see Fixed income ETP flows chart).

Stock ETF fund flows try to keep pace

The massive haul for bond funds overshadowed what was another positive year for stock ETF flows. Both bond and stock ETFs saw the majority of their flows via broad market funds.

However, an interesting trend among stock ETFs has been a multiyear shift in flows for cyclical and defensive sector ETFs. Both incurred net outflows in 2019. This was the second straight year of outflows for cyclical sector ETFs, following big hauls in 2016 and 2017 (see US sector flows: Cyclical vs defensive chart).

Gold ETF flows saw a late-year surge

The gold ETF story was a tale of 2 halves. In the first half of the year, net gold ETF flows were mostly flat. In the second half, periodic geopolitical and macroeconomic concerns contributed to a pickup in demand for gold ETFs. By year end, net flows totaled a strong $10 billion relative to previous years (see Gold ETP flow chart).

Investing implications

Why follow fund flows?

Tracking fund flows can help you evaluate which parts of the market may have momentum, and can be useful if you incorporate trends and patterns in your analysis. You can assess fund flows by asset category, region, and objective, among other characteristics. Additionally, if you're a long-term investor, you might look at annual or multiyear trends. If you have a shorter investment horizon, you might track weekly, monthly, or quarterly fund flows.

Of course, recent or historical trends are not necessarily a harbinger for the future. Moreover, it is generally inadvisable to take action based on any one piece of information, including fund flow data. Nevertheless, ETF flows can be a useful tool to help identify market trends, to see where investors are broadly putting their money.

If you are exploring the ETF universe, the key is to find those that align with your objectives and risk constraints, regardless of the trend in flows. One tool that may be of use is Fidelity's ETF Screener, which can quickly sort through a lot of data based on the filtering selections you make. You can search for ETFs using a variety of characteristics, like the fund's objectives, fundamentals, technicals, performance, volatility, trading characteristics, tax considerations, and analyst ratings.

Next steps to consider

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