Healthcare and utilities ETFs outperformed their historical highs, while long-term mutual funds saw net outflows
Despite the market fall, worldwide net inflows into ETFs totaled US$867 billion throughout 2022, which is second-highest on record only to the US$1.29 trillion peak reached in 2021, according to new figures from BlackRock.
Several asset types outperformed expectations and had their highest-ever flows despite the challenges.
The world’s largest asset manager said that net inflows into government bond ETFs reached US$181 billion, breaking all prior records in the short, medium, long, and blended maturity funds. This represents a rise in net inflows over the preceding three years combined.
Emerging-market stocks reached a new high, raking in US$110 billion, while overall equity ETF flows decreased to US$598 billion from US$1 trillion in 2021.
2022 also saw defensive industries exceed their prior highs, as exemplified by gealthcare (US$20 billion) and utilities (US$6 billion).
However, a year after seeing their largest-ever inflows of US$47.2 billion, inflation-linked bonds (-US$14.6 billion), emerging market debt (-US$9.2 billion), and equity ETFs focusing on the banking sector (-US$16 billion) also had record withdrawals.
With a US$16.8 billion outflow, European equities market-focused ETFs had their third-largest outflow in history.
Rory Tobin, head of the Global SPDR ETF business, told the Financial Times: “Investors have been turning away from broad European equities as the region was impacted by war in Ukraine, high inflation and stronger monetary policy tightening than initially expected.”
Global investors continued to believe in ETFs despite their previous holdings sinking in a sea of negative cash flow.
“As a global ETF industry, despite how difficult 2022 was for markets more generally, with double-digit declines in stocks and bonds, it has been a good year,” said Karim Chedid, head of investment strategy for BlackRock’s iShares arm in the EMEA region.
According to Chedid, the two years had completely different circumstances, yet it was the second-largest year [for flows] on record. There was a risk-friendly climate in 2021, and stocks were rising. Although the year 2022 was unfavourable for investors, they continued to change their asset allocation using ETFs.
As investors increasingly choose ETFs over mutual funds ---notably in the US, the world's largest investment market --- the resiliency underlines the strength of the ongoing "structural bid" for ETFs.
As of December 28, according to statistics from the Investment Company Institute, long-term mutual funds saw net outflows of US$1.1 trillion. Meanwhile, ETFs witnessed net inflows of US$611 billion during 2022 in the US.
“While ETFs have been around for nearly three decades, it feels as though the industry is still accelerating,” said Nate Geraci, president of the ETF Store, an investment advisor, who forecast that inflows in the US alone this year would top US$1tn.
“While it’s been going on for a while, I think we’ll look back on 2022 as the year mutual funds formally passed the baton to ETFs. The mutual fund is now dying as an investment vehicle. The time of the ETF has arrived.”
