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Passive investing just blew past 2016’s record level

  • $391 billion invested in ETF's in first 7 months of 2017.
  • BlackRock and Vanguard are biggest winners of trend.
  • Investors disappointed in high active management fees and low yields.
ETF
Melpomenem | Getty Images

Investors have piled a fresh record level of money into Exchange Traded Funds this year as the fashion for passive investing shows no sign of slowing.

Across the first seven months of 2017, investors routed $391 billion into ETF's, already beating last year's record annual inflow of $390 billion, according to ETFGI, a London-based consultancy.

Deborah Fuhr, Managing Partner at ETFGI, said by telephone Monday that active strategies are not beating benchmarks and that is one major reason for the rise of exchange traded products.

"If you look at asset rate of returns from hedge funds over the last 6 and half years, the rate of return has been less than the S&P 500," Fuhr said.

Fuhr added that ETF's have also gained popularity as it grants easy access to assets such as gold or A-shares.

The rise of ETF's has drawn criticism from some money managers who question if providers of the funds will easily be able to sell should they need to.

But Fuhr said the fears are overblown:

"I don't see it. Indexed products only account for about 11 percent of market capitalization and ETF's themselves are only a small, if fast growing, part of that," Fuhr added.

BlackRock and Vanguard are the world's two largest asset managers.

According to ETFGI data, BlackRock pulled $158.9 billion into its iShares ETF arm, already flashing past the $137.9 billion gathered over the whole of 2016.

And Vanguard has seen its ETF business attract $91.8 billion of inflows in 2017, nearing the $96.8 billion gathered in 2016.