New analysis from State Street Global Advisors (SSGA), the asset management business of State Street Corporation (NYSE:STT), reveals there has been a five fold increase in global assets of sector exchange traded funds (ETFs) since 2008, reaching $394 billion in assets under management (AUM) at the end of 2016, with $35 billion in flows last year alone.
The US experienced the greatest growth, where there was a 548 percent increase in sector ETF assets with $30 billion in flows last year. However, Europe came a close second with a 487 percent increase in sector ETF assets and $3 billion in total flows in 2016.
Since 2008, the top three sector ETFs for investors globally have been technology sector ETFs with more than a tenfold increase in total AUM; followed by real estate sector equity ETFs with a 919 percent rise in total AUM; and then energy equity ETFs, which underwent a 599 percent growth in total AUM.
Breaking down the figures by region, over the last nine years real estate sector equity ranked the most popular sector, with Europe experiencing more than a tenfold increase in real estate ETF assets, and $9 billion in flows last year alone. The rest of the world saw total AUM increase from $0.4 billion in 2008 to $9 billion in March 2017.
The real estate sector also fared well in the US where there was a 831 percent increase in real estate ETF assets, with $8 billion in flows in 2016. However, technology proved the most favourable sector for investors with more than a tenfold increase in ETF assets, although total flows were down $1 billion last year.
Antoine Lesné, head of SPDR ETF Strategy & Research, EMEA said, “Sector ETFs have seen a marked increase in popularity amongst investors likely due to their potential for a more targeted exposure than growth and style investing, while maintaining cost-efficiency. By investing in an entire sector, investors gain greater diversity, reducing single stock risk, whilst achieving a much wider dispersion return than style indices. A sector rotation strategy allows investors the potential to benefit from more predicatble economic trends likely to impact certain industries. With the rest of the year punctuated with political events and the macro economic backdrop shifting, the popularity of sector investing is highly likely to continue on its current trajectory for the foreseeable future.”