Worldwide index assets managed in ETFs and exchange-traded notes totaled $7.58 trillion as of June 30, up 17.2% from a year earlier, according to Pensions & Investments' annual survey of index managers.
That $7.58 trillion marked a doubling from five years earlier when such assets totaled $3.79 trillion, the survey showed. The 17.2% yearly increase came after the 5.4% decline seen the prior year when assets fell to $6.47 trillion as of June 30, 2022, according to the survey.
"ETFs are really like a Swiss Army knife, there's so many use cases for 'em," said Matthew Bartolini, a managing director and head of SPDR Americas research at State Street Global Advisors, which ranked third on the list of top ETF/ETN index managers with $1.12 trillion in assets as of June 30, up 13.8% for the year.
"An ETF can be used as a strategic buy-and-hold low-cost position, or a tactical trading vehicle due to abundant secondary market volume, or as a hedging exposure given the ability to go short the ETF or utilize options based on the ETF," Bartolini said.
Back in 2022, when both equity and fixed-income markets fell sharply, "it was a harder slog from just an asset perspective, but investment was still there," he said. In fact, during that calendar year, U.S.-listed ETFs, the vast majority of which are passively managed, had some $596 billion of net inflows, excluding mutual fund to ETF conversions, he said.
"And then this year, you have positive market effects," Bartolini said. "Even though fixed income is down a little bit this year, equities are broadly up."
Asked what has fueled the 99.9% jump in ETF/ETN assets over the past five years, he pointed to what he called the "four Cs" — cost, choice, comfort and clients.
"ETFs are uniquely lower cost, and I think everyone would like to pay less and get more," Bartolini said, adding that when it comes to the level of choice, both the number and the variety of products available in the ETF wrapper have increased significantly.
As for comfort, ETFs, as they did during the COVID-19-related market turmoil experienced in March of 2020, have proven to be "a really valuable tool in your portfolio for liquidity in times of stress," he said.
And, more "client types" are adopting ETFs, Bartolini said, pointing to insurers as an example.
"Insurance firms are gravitating towards fixed-income ETFs due to changing regulation on how they can treat fixed-income ETFs," he said.
Emily McKinley, head of institutional ETFs and models at Invesco, said one notable way institutional clients are using ETFs is to achieve operational efficiency. ETFs can reduce the work of managing a core exposure or provide efficiency during "friction points" in the portfolio, she said.
"And I truly have seen it from the smaller, understaffed pensions all the way through to the largest ones because I think anything — any tool — that's going to make your life easier and your outcomes better is always welcome," McKinley said.
Invesco ranked fourth with $464.9 billion in ETF/ETN assets as of June 30, up 21.2% from a year earlier.
Bartolini said ETFs can help pension funds reduce operational inefficiencies and perhaps even enable them to pick up some additional income as well. For example, he cited a scenario where a pension fund might have a large portfolio of individual high-yield bonds. "It's operationally time consuming to sell and manage those," Bartolini said.
Working through a financial institution known as an authorized participant, the pension fund could potentially exchange those bonds for shares of the SPDR Bloomberg High Yield Bond ETF, Bartolini said. That ETF, known by the ticker JNK, had assets under management totaling $5.6 billion as of Oct. 31.
In addition to reducing operational inefficiency, "they've also added that additional income potential because they can lend out shares of JNK," he said, adding that "JNK has a pretty robust lending market."
BNY Mellon Investment Management, which introduced its first suite of ETFs in 2020, ranked seventh on the list of top ETF/ETN index managers, with assets totaling $68.9 billion as of June 30, up 41.8% from $48.6 billion a year earlier, according to P&I's survey.
While BNY Mellon IM launched its own ETF lineup fairly recently, Mellon, one of the investment firms within BNY Mellon IM, has managed ETFs as a subadviser for 18 years, according to Stephanie Hill, head of index at Mellon.
Hill said "we've seen some model allocations over our way … some asset allocation moves into these funds."Two of the funds in BNY Mellon IM's lineup "are the industry's first true zero-fee ETFs," she said.
The $1.7 billion BNY Mellon US Large Cap Core Equity ETF and the $541 million BNY Mellon Core Bond ETF "are really attracting interest," Hill said, adding they "are the industry's first true zero-fee ETFs."
"We've been quietly doing this management, and, yeah, we're really proud of that seventh-place ranking," said Hill, who also cited Mellon's even longer history in indexing.
"This is our 40-year anniversary of being in the index space," she said. "So, you know we are a really long-standing index manager."
BlackRock topped the list of ETF/ETN index managers with $3.22 trillion in assets as June 30, up 15.5% from $2.78 trillion a year earlier. Vanguard Group ranked second with $2.13 trillion, up 19.3% from $1.79 trillion as of June 30, 2022.
"The last year has been remarkable for ETFs, and especially for iShares, despite a challenging market environment," said Lindsey Shapiro, a managing director and chief operating officer of ETF and index investments at BlackRock, in a statement. "The breadth of our ETF platform enables us to capture changes in client demand as evidenced by our industry leading flows in iShares bond ETFs."
BlackRock has $89 billion in fixed-income ETF net inflows through Oct. 31, more than 33% of the $265 billion total net inflows into all bond ETFs, a BlackRock spokesperson said.
