iShares Shines in a Volatile Year, Setting Stage for Future Global Growth

At the same time, a number of iShares ETFs saw record trading in 2018. Secondary trading volumes surpassed $7.3 trillion for iShares ETFs in the U.S. and Europe combined, compared to just over $5 trillion in 2017, an increase of 42 percent.

“Last year showed the ever-growing versatility of iShares exchange-traded funds. Investors around the world used ETFs to capture alpha, manage risk, invest sustainably, and tap liquidity in tighter financial conditions,” said Mark Wiedman, Global Head of iShares and Index Investments. “ETFs are now established as natural parts of every investor’s portfolio.”

iShares ETFs’ robust flows during a year of broad declines in stock and bond prices point to the resilience and expanding usage of ETFs globally, both as investment vehicles and market tools. iShares ETFs saw a notable increase in adoption as proxies for their underlying securities, a trend that was particularly evident during periods of market stress — when trading of iShares ETFs added liquidity just when it was needed.

Europe: Record Trading Volume

Record industry trading volumes of almost $2 trillion in 2018 were clear evidence that investors increasingly see European ETFs as an efficient and liquid way to invest. iShares maintained its position as an industry leader in Europe, capturing 45 percent of industry flows and achieving notable industry milestones during the year.

European investors put more than $1 billion into iShares’ sustainable ETFs in 2018, while the iShares thematic range reached $4 billion in assets.

“ETFs and index funds make up about 10 percent of portfolios on average in Europe, and we see this number increasing to 50 percent over coming years. Across the region, technology and regulation are driving structural change in the form of cost sensitivity in the wealth industry and transparency of trading for institutional investors. These factors are intensifying investor scrutiny on the true drivers of return and the products best-suited to delivering client goals,” said Stephen Cohen, Head of iShares EMEA at BlackRock. “In parallel, investors are broadening how they invest, fueling trends such as sustainable and thematic investing. These factors play squarely into the characteristics and choice afforded by ETFs and index funds.”

Assets Continue to Flow to ETFs across the World

iShares was the top asset gatherer in 2018 across major markets and strategies, with net global inflows of $167 billion, or 32 percent of industry net flows of $515 billion

• iShares set new monthly records with flows of more than $29 billion in November and $44 billion in December.
• Net new investments into iShares core strategies were robust in every region, with $109 billion globally.
• iShares factor strategies continued to be strong as well, taking in $22 billion in 2018; the bulk of flows went to single factor ETFs such as quality, momentum and minimum volatility.
• Flows into iShares sustainable ETFs reached $3 billion globally, as investors increasingly seek ways to combine their financial goals with environmental, social and governance (ESG) issues. Sustainable iShares ETFs led the industry with a 52 percent organic growth rate in 2018, topping $8 billion in assets under management. BlackRock believes sustainable ETFs are at an inflection point, with assets under management (AUM) for the industry projected to reach more than $400 billion by 2028, from $25 billion today.

Bond ETFs: The Road to $1 Trillion?

Fixed income continues to represent one of the fastest-growing segments of the ETF market. iShares is the global industry leader for bond ETFs, both in flows ($50 billion for 2018) and AUM ($428 billion). Among market segments, the greatest share during 2018 went to short-duration and high-quality bonds, as investors globally sought to offset equity risk, generate income and hedge against rising rates.

Industry flows into bond ETFs came to $131 billion globally, with a total AUM of $878 billion. Based on an asset growth rate average of 20 percent annualized globally over the past five years, iShares projects that global bond ETFs could surpass $1 trillion by 2020.

Scope and Scale in 2019 and Beyond

Looking forward, ETF momentum will continue to build, with exceptional growth not just in overall size but also in scope. More and better uses of ETFs will be fueled by demand from investors themselves, who are continually looking for innovative ways to access news exposures, achieve portfolio outcomes and make progress toward their investment goals. Technology has also advanced iShares ability to index markets and strategies that were unimaginable even a decade ago.

Last year, iShares projected that global ETF assets could reach $12 trillion by 2023. The industry is still on course to meet that milestone, thanks to macro forces that have remained firmly in place. These include: investors’ sensitivity to cost; transformations in the financial advice model; the evolution of fixed income platforms; and an erasure of the traditional — and less relevant — distinction between “active” and “passive” investing.

“When flows and assets increase during periods of volatility and market downturn, it sends a powerful message: investors prefer iShares ETFs as liquid, low-cost, and transparent market access vehicles” said Carolyn Weinberg, Managing Director and Global Head of Product at iShares. “We have particularly seen significant flows into factors and fixed income ETF products from investors building more resilient portfolios.”