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Global ETFs Gather $4 Trillion AUM: What's Behind the Boom?

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Amid both peaks and troughs in the stock world, the ETF industry is seeing an explosive growth era thanks to its unique strategies, creativity, transparency, diversification benefits, enhanced tax competences, low turnover and of course low cost. Additionally, the novel concepts that issuers are bringing in to the ETFs is attracting investors.

That said, the industry has reached the $4 trillion milestone. As per ETFGI, global ETFs have gathered around $283.9 billion in assets in the first five months of 2017 compared with $91.5 billion in the same period last year. Globally, the industry has over 6,889 products with AUM of $4.1 trillion from 313 providers listed on 68 exchanges in 55 countries at the end of May (read: Invest in Superstar Stocks with These ETFs).

About 71% ($201.4 billion) of total inflows came from the equity ETFs, followed by $63.7 billion inflows in fixed income and the rest in commodities. Coming to issuers, iShares is dominating the industry this year, having gathered $111.17 billion in AUM, followed by inflows of $68.76 billion for Vanguard and $11.56 billion for Schwab.

Inside The Boom

Low cost has been the biggest crowd pullers in the ETF world as most of the plain-vanilla popular ETFs have an expense ratio below 0.05%. Schwab U.S. Broad Market ETF (SCHB - Free Report) , Schwab U.S. Large-Cap ETF SCHX and iShares Core S&P Total U.S. Stock Market ETF ITOT are the cheapest, charging just 3 bps in annual fees.

The rise in "thematic investing” and the craze for smart beta are leading to staggering returns. This is because many investors are interested in highly specialized themes or niche investing, focusing on a narrow corner of the market rather than broad sectors. On the other hand, the smart beta strategy helps to capture market inefficiencies in a transparent way by adding extra metrics like dividends, volatility, revenue, earnings, momentum, equal weight and other fundamental factors to the market cap or rules-based indices (read: 3 Niche ETFs That Have Surged to #1 Rank This Summer).

In fact, the top-performing ETFs , namely ARK Innovation ETF ARKK, VanEck Vectors India Small-Cap Index ETF SCIF, Emerging Markets Internet & eCommerce ETF EMQQ, PureFunds Video Game Tech ETF GAMR and WisdomTree China ex-State-Owned Enterprises Fund CXSE belong to these categories. These funds have gained at least 34% in the year-to-date time frame.

Apart from these, an increased number of launches is adding to investors’ enthusiasm. After 246 launches in 2016, the industry has already seen 90 launches this year. Of these, a few ETFs have been able to garner more than $100 million in AUM. Principal Active Global Dividend Income ETF GDVD and Cambria Core Equity ETF CCOR have gathered $431.8 million and $100.5 million, respectively, within a month of debut. Franklin LibertyQ U.S. Equity ETF FLQL has also accumulated nearly $115 million since its launch in late April (read: What Makes This Global Dividend Income ETF So Popular).

Quick Look to Top Asset Gatherers

Despite the flurry of innovative products, the plain-vanilla ETFs retained the top spot in terms of asset accumulation, as per iShares Core S&P 500 ETF IVV has accumulated nearly $19 billion in its assets base, followed by $10.7 billion by iShares Core MSCI Emerging Markets ETF IEMG and $8.4 billion by Vanguard FTSE Developed Markets ETF VEA.

The low cost is driving these ETFs as IVV, IEMG and VEA have expense ratios of 0.04%, 0.14%, and 0.07%, respectively. These funds have added 9.5%, 17.4%, and 13.8%, respectively, since the start of the year (read: Can Emerging Market ETFs Retain Their Mojo in 2017?)

Apart from ETF-specific factors, bullish market fundamentals across the globe make these products appealing.

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