Not even COVID-19 could stop the torrent of flows into exchange-traded products (ETPs), which are composed almost entirely of exchange-traded funds (ETFs). US-domiciled ETFs accumulated nearly half a trillion dollars in net flows (i.e., inflows less outflows) during 2020, according to BlackRock's Follow the Flow annual report.*
Here were the biggest trends among ETFs in 2020.
ETF flows surge across categories
Historic government and central bank support that helped stabilize global markets in the wake of COVID-19 also helped sustain momentum for ETFs—across a range of asset classes. All told, US-domiciled ETFs accumulated $495 billion in net flows (inflows less outflows). That breaks the previous annual record set in 2017 of $470 billion, and easily outpaces the $308 billion net gain in 2018 and $335 billion net gain in 2019.
Among asset classes, equity (i.e., stock) ETFs had net flows of $246 billion, fixed income (i.e., bond) ETFs accumulated $205 billion, and commodity net flows totaled $41 billion (see US-domiciled ETP flows chart). Flows for US equity ETFs (the subcategory in BlackRock’s report with the highest amount of net flows during 2020) were bolstered by a massive $82 billion net haul during the 4th quarter of last year.
Within international investment categories, global equity ETFs and developed market ETFs excluding the US took in $46 billion and $25 billion, respectively. Emerging market equity ETFs managed to add nearly $2 billion in 2020, which is notable after having $15 billion in net outflows during Q1 and Q2 of 2020.
Bond ETF flows set new record
Central bank efforts in particular were critical to supporting the momentum for much of the bond universe in 2020. One such example was the Secondary Market Corporate Credit Facility that was announced in March 2020, as the scope of the pandemic was unfolding. This central bank policy involved buying corporate bonds as well as US-listed exchange-traded funds whose investment objectives entail providing broad exposure to US investment-grade corporate bonds.
This contributed to bond ETFs setting a new annual record. After tallying a then record $150 billion in net flows in 2019, that number grew to $205 billion in 2020 (see Fixed income ETF flows table).
Other notable trends
After gathering over $10 billion in net flows during 2019, commodity ETF new flows swelled to $41 billion in 2020. Those flows were concentrated mostly in gold ETFs during the first 6 months of 2020, as safe-haven buying sent the price of gold higher amid the initial outbreak of the COVID-19 pandemic.
Elsewhere, alternatives and currency ETFs continue to attract relatively low net flows ($2.7 billion and $0.5 billion, respectively).
Trends for these 2 categories may be worth watching. Recently, alternatives have increasingly been the subject of discussion among regulators in regard to overseeing new products brought to market for retail investors to potentially get access to alternative investments (ETFs being among those products). Also, currency ETFs—which currently have diminutive assets under management relative to traditional market ETFs—could gain momentum if interest in cryptocurrencies (and new cryptocurrency products, including ETFs) continues to grow.
Exploring the ETF universe in context
Why follow 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.