New analysis from State Street Global Advisors (SSGA), the asset management business of State Street Corporation, shows there has been a fivefold increase in global assets of sector exchange-traded funds (ETFs) since 2008, reaching US$394bn in assets under management (AUM) at the end of 2016, with $35bn in flows last year alone.
The US experienced the greatest growth; there was a 548 percent increase in sector ETF assets there with $30bn in flows last year. Europe came a close second with a 487 percent increase in sector ETF assets and $3bn 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.
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 predictable 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.”