This year's first three quarters were tough for exchange-traded funds, but the vehicles still managed to attract investor cash, a new CFRA Research report showed.
Of the 2,754 ETFs listed in the U.S. at the end of the third quarter, just 6% – or 161 ETFs – posted positive absolute returns after fees this year through Sept. 30, according to the report by Aniket Ullal, head of ETF data and analytics at CFRA.
CFRA's figure for total U.S.-listed ETFs excluded leveraged and inverse products.
The war in Ukraine, high inflation and rising interest rates have made for challenging macro conditions for investors this year. Still, U.S.-listed ETFs managed to take in $396 billion of net inflows this year through Sept. 30, according to the report, released Thursday. The inflows likely reflect ETFs' continued popularity as an investment vehicle among both retail and institutional investors, the report found. Assets of the 2,754 ETFs totaled $5.85 trillion at the end of the third quarter, according to CFRA.
Institutional investors prefer ETFs because they are liquid, enabling them to get in and out of instruments quickly, Mr. Ullal said in an interview.
"They can get very targeted exposure to specific themes and sectors," he said. Often times institutional investors may have a view on a particular sector, theme or factor, and because most ETFs are indexed, investors are able to understand their exposure and the construction of the underlying index.
"So, the fact that they are transparent, liquid and very focused on particular themes and strategies is the reason why investors like them," Mr. Ullal said.
ETF categories that had large inflows relative to assets this year through Sept. 30 included food and beverage; dividend strategies; government bond; and currency ETFs, he said. ETF categories with significant outflows relative to assets were high-beta stocks, transport stocks and leisure sector ETFs.
