Exchange-traded funds overall are on track for another strong year, says David Mazza, head of research for SPDR ETFs and State Street Global Advisors Funds Research Team.
"We continue to see the ETF industry grow robustly across, effectively, the entire landscape," Mazza said during a visit to ThinkAdvisor's New York office. "Equities and fixed income products both … have taken in sizable assets year-to-date."
According to SSgA and SPDR's 2015 Midyear ETF & Investment Outlook report, of which Mazza is an author, net inflows of ETFs have hit $72.5 billion so far, pushing overall industry assets under management to $2.12 trillion across 1,496 funds.
Worldwide, assets invested in globally listed exchange-traded funds and products set a new record of $3.02 trillion in May, according to ETFGI's preliminary monthly global insight report.
And a recent report from Goldman Sachs predicts ETF assets will hit $6 trillion by 2020.
"[The Goldman report] seems like a big number but based on the speed at which the industry is growing might actually be conservative," Mazza said.
Mazza also pointed to a recent study from the Financial Planning Association that showed ETFs have become the preferred investment vehicle among advisors.
"[T]he economy, while a bit shaky and mixed, is trending in the right direction, and people are beginning to have more confidence, but they're looking toward ETFs increasingly as the preferred vehicle to express those opinions," he said.
In the interview, Mazza talked about some of the trends he sees in the 2015 Mid-Year ETF & Investment Outlook report and recapped what recent ETF flows hint about how investors are positioned for the second half of 2015.
International Equities
The most noticeable trend in the midyear outlook is that investors are choosing international equities over U.S. equities, Mazza said.
The report finds that investors are looking beyond U.S. borders for opportunities and more attractive valuations in international markets, which may may also reflect lower-than-expected recent U.S. economic growth.
"People have looked overseas for that valuation opportunity, for that boost in sentiment in the fact that the dollar continues to look like the strongest currency and will be potentially for some time," Mazza told ThinkAdvisor.
According to the report, investors clearly turned to Europe early this year on expectations of European Central Bank (ECB) easing, although investors continue to closely monitor the tenuous situation in Greece.
"Because of the ECB's actions and the weakness of the euro in particular, it drove investors to say, 'OK … while long-term Europe might continue to face some structural challenges, now might be the time to diversify away from the U.S.'" Mazza said. "Purely index-based exposure might not necessarily give you the gains in the U.S. that people become accustomed to."
Sector Investing
In addition to investors looking overseas for opportunities, they're also reassessing their domestic exposure. Another trend Mazza has found in the midyear outlook is the growth of sector investing in the U.S.
"Advisors are now taking a cue from the institutional community who have done sector investing for some time and saying, 'Well I understand that the market for sort-of single-stock investing still remains — it's hard. It's risky because then you're basically placing all your bets on one particular company,'" Mazza said.
