ETF Investors Are Influencing Emerging Market Assets


Exchange traded funds have helped democratize the investment process, allowing investors from all walks to access a plethora of asset categories. With the rising popularity of ETFs, investors are now beginning to influence the emerging markets.

According to Citigroup, ETF investors have established increasing sway over emerging market stocks and bonds, reports Adam Samson for the Financial Times.

ETFs that track emerging market assets have now accumulated almost $250 billion dollars under management, with $196 billion in equities and $48 billion in fixed income. EM ETF assets are now equivalent to a fifth of total emerging market mutual fund assets under management. In contrast, the figure was just above 12% two years ago.

The sixth-biggest ETF by assets, Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO), tries to reflect broad emerging market stock. The iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) was the fourth most popular ETF trade of 2017, attracting $12.3 billion in net inflows year-to-date, according to XTF data. VWO was the ninth most popular ETF trade of the year, with $6.6 billion in new inflows.

“ETF flows themselves increasingly representative of asset class sentiment as a whole,” Citi’s Luis Costa said in a note.

Related: ETF Investors Can Look Outside of U.S. for Value

After several years of struggling, emerging market equities and related ETFs perked up in 2016 and are building on those gains in 2017. Many investors are turning to overseas markets, especially the relatively cheap developing markets, in the wake of lofty valuations in the U.S. where we are going into the ninth year of the extended bull run.

Costa pointed out that the growth in ETFs have contributed to the drop in global equities and rates volatility. However, the Citi analyst did warn that “vol spikes may become nastier than the ones from the past.”

For more information on the developing economies, visit our emerging markets category.