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2017 look ahead: ETF market

With the ETF industry looking to end 2016 on a record-breaking high, iShares EMEA BlackRock's Ursula Marchioni discusses the year which was and what the future may hold for the industry.

All trading involves risk. Losses can exceed deposits.

With running cumulative inflows of $361 billion, the ETF industry is on track for a record year. Ursula Marchioni from iShares EMEA BlackRock says contrasting market conditions during the first and second halves of the year highlighted both the breadth and depth of the ETF range at industry level.

First-half flows were $121.5 billion, with 56% from fixed income and 22% from commodities, as equity returns disappointed and low interest rates persisted. Market conditions reversed in the second half and flows surged to $240 billion, 85% of which derived from equities.

Quarter three was the second-best quarter ever, sparked by a quick market recovery in the wake of the Brexit referendum surprise, while Q4 was the fourth-best quarter ever, boosted by a market rally following the US presidential election.

Three themes that had the greatest impact on the ETP industry during 2016 were increasing investor utilisation of fixed income ETPs, renewed appetite for broad emerging markets equity and the second-half turnaround for US equities.

Broad EM equities were back in favor and had their best year since 2012. The MSCI EM index rose 8% for the year. The high for the year was 17%, just shy of the 18% for full-year 2012. The industry broad EM flows were $25.5 billion.

The S&P 500 returned only 3% through June, but was up 11% for the year, reaching new highs post-Brexit and again after the US election. The industry brought in $167.9 billion.

Though the 10-year Treasury yield rose to 2.58%, it touched an all-time low of 1.37% in July and spent much of the year below 2%. The industry set new flows records with $110bn into fixed income ETPs globally. 

Looking ahead to 2017 Ursula says the three main themes to watch are reflation, low returns and the fact that diversification is getting harder.  She looks at ways to harness opportunities in these three areas.

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