ETF assets boom in 2017

BlackRock and Schwab saw big inflows, and more growth throughout the industry is expected in 2018

Jan 3, 2018 @ 1:54 pm

By John Waggoner

Investors aren't the only ones happy about 2017 returns. ETF sponsors are doing a happy dance, too.

Net ETF issuance jumped to an estimated $473.2 billion last year, up 67% from $282.2 billion in 2016, according to the Investment Company Institute, the funds' trade group. Morningstar Inc. added about 270 new ETFs to its database in 2017.

BlackRock Inc. was a big recipient of that haul. The iShares sponsor saw net inflows of $201 billion with total global assets under management rising to $1.74 trillion. Institutions in every region of the world accelerated their use of iShares ETFs across asset classes and in tactical and buy-and-hold portfolios, the company said.

In the U.S., the two big drivers of ETF growth were fee-based advisers and institutional investors, said Jennifer Grancio, global head of iShares distribution at BlackRock.

"The biggest two places where we see growth in 2018 are fixed-income and factor ETFs," she said. "We think fixed income can be as big as equity, and that factor is a similar story, but it's early days."

Net inflows for iShares' fixed-income products grew at a 13% pace, with more than $68 billion in new flows.

ETFs remain a tough sell in corporate 401(k) plans, Ms. Grancio said. But she sees plenty of growth in 401(k) and IRA rollovers.

"Investors are well served with traditional mutual funds in core 401(k) exposure," she said. "We're seeing the most growth in the taxable and rollover market."

Similarly, ESG funds — those that focus on environmental, social and governance concerns — are seeing growth, but flows pale in comparison with plain-vanilla index offerings and fixed income.

"Growth is going to be driven by demand," Ms. Grancio said. "It's early, but if you look at European and Nordic countries, they are all demanding ESG funds."

At Charles Schwab & Co., ETF growth has been robust as well. ETF assets at Schwab have grown to $400 billion as of November.

"It's been a phenomenal year for ETFs at Schwab," said Heather Fischer, vice president of ETF Platform Management at the firm. "When I joined Schwab four years ago, assets were just under $200 billion."

Schwab added 12 new ETFs to its OneSource platform today, bringing the number of no-commission ETF offerings to 254. OneSource ETF assets have grown to $100.8 billion as of November, from $68.4 billion at the end of 2016.

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