Record high ETF assets and robo-advisers - Global Fund Insights

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The third quarter of 2016 was generally positive for the global mutual fund industry. Equity, bond, mixed and other long-term mutual funds attracted US$311 billion in net flows during 3Q’16, the largest amount since 2Q’15. The year-to-date through September net flow contributions reached US$513 billion worldwide.

Bond funds dominated all major asset classes since the beginning of the year, totalling US$258 billion in net new money in 3Q and US$464 billion year-to-date. On the other hand, equity funds suffered net redemptions throughout the past three quarters, which together amounted to US$136 billion in net withdrawals. This trend, however, will possibly change after the U.S. election, as the recent selloff in global bonds and emerging market debt could trigger a potential shift towards equity products.

Locally-domiciled funds in Asia led the 3Q flows among all regions at just over US$120 billion, with China contributing almost 70% of that total. Japan added US$21 billion in net flows during 3Q, nearly US$16 billion of which went to ETFs.

U.S. investors also poured a huge amount of net new money into passive ETFs and index funds, totalling US$142 billion in 3Q and US$305 billion over the past three quarters. In comparison, actively managed long-term funds suffered US$67 billion and US$179 billion in net redemptions during the same periods, respectively.

In Europe and the cross-border space, bond funds also led the contributions gathering €69 billion (US$77 billion) in net investor money throughout 3Q, nearly 80% of which or €53 billion (US$59 billion) went to cross-border funds.

In 2016, ETFs globally attracted around US$240 billion in net investor money during the first three quarters, on pace to closely match the record high of ETF net flows garnered in 2015. At the end of 3Q’16, ETF AUM reached nearly US$3.4 trillion worldwide.

Increased investors’ demand has spurred the innovations of ETFs. Smart Beta/fundamental index strategies are trying to bridge the gap between traditional passive ETFs and conventional actively managed mutual funds. Another recent trend is the development of actively managed ETFs globally.

Robo-advisors, automated advisory platforms that construct and rebalance portfolios at a fraction of the cost of a human advisor, have disrupted the financial services industry worldwide. FinTech start-ups, backed by venture capital firms, were the first to set foot in the robo-advisory space and challenge the traditional financial advisor model, but more traditional institutions, such as wealth and asset managers, are also heading towards digital transformations. Many of the largest asset managers are either buying existing robo-advisors or creating their own platforms.