Global ETF Market Facts: Three Things to Know From Q4 2022

By Samara Cohen

THREE THINGS TO KNOW FROM This autumn 2022

1. Trade traded funds (ETFs) stay a fraction of the entire world monetary market in each equities and glued earnings, starting from 3.9%-12.6% of equities and 0.3%-2.5% of fastened earnings belongings by area.¹
2. ETF buying and selling as a proportion of whole fairness volumes was up barely in This autumn. ETF buying and selling volumes in 2022 have been the best on report, with over $53 trillion traded (in contrast with $41 trillion in 2021).²
3. Whereas the CBOE Volatility Index (VIX), a proxy for U.S. fairness market volatility, remained excessive all through 2022, bid-ask spreads throughout world ETFs have been near their 2021 ranges.³ Bid-ask spreads for world iShares ETFs have been tight relative to trade averages at 16.2 foundation factors (bps) and 29.1 bps, respectively.⁴

ETF MARKET SIZE

Globally, belongings below administration in ETFs are solely a fraction of the entire monetary market.

ETFs signify 12.6% of fairness belongings within the U.S., 7.5% in Europe, and three.9% in Asia-Pacific. Market share is smaller in fastened earnings, the place ETFs account for two.5% of fastened earnings belongings within the U.S., 1.6% in Europe, and 0.3% in Asia-Pacific (Figures 1, 2, and three).

Chart Description: Column charts displaying the dimensions of fairness and glued incomes ETF belongings below administration compared to the entire fairness market capitalization and whole debt excellent within the U.S., Europe, and Asia-Pacific. This chart exhibits that whereas ETFs signify a big greenback quantity of belongings, that quantity continues to be small compared to each the fairness and glued earnings markets.

ETF TRADING VOLUMES

Within the fourth quarter of 2022, common each day buying and selling volumes for U.S. equities and U.S. ETFs have been $502.2 billion and $157.7 billion, respectively. Because of this U.S. ETFs accounted for 31.4% of the entire U.S. composite quantity within the secondary market over the quarter.

The common each day buying and selling quantity in European equities was $81.5 billion, whereas the typical each day buying and selling quantity in European ETFs was $10.1 billion. Because of this secondary market buying and selling in European-domiciled ETFs accounted for 12.4% of whole European money equities over the quarter.

In Asia-Pacific, ETFs accounted for 13.8% of the entire composite quantity within the secondary market within the quarter, with Asia-Pacific equities and ETFs buying and selling $140 billion and $19.3 billion, respectively (Figures 4, 5, and 6).

Figures 4-6: ETFs as % of whole fairness buying and selling quantity (% common)¹⁷

Chart description: Column charts displaying ETF buying and selling as a proportion of total fairness market buying and selling volumes within the U.S., Europe, and Asia-Pacific. This chart exhibits that ETF buying and selling quantity as a proportion of the fairness buying and selling quantity was considerably greater than in earlier years as buyers proceed to commerce ETFs at an growing price. 

MOST TRADING ACTIVITY OCCURS IN THE SECONDARY MARKET

Most ETF buying and selling exercise happens within the secondary market, the place ETF shares change fingers between patrons and sellers. When demand can’t be met within the secondary market, massive establishments (known as “approved members”) can transact with ETF issuers to create or redeem ETF shares in a separate, “main” market.

Within the fourth quarter of 2022, the ratio of secondary market exercise to main market exercise within the U.S. was 9:1. Because of this for each $9 of ETFs traded, solely $1 resulted in buying and selling exercise within the underlying securities. In Europe, this ratio was 2:1 and in Asia-Pacific it was 5:1 (Figures 7, 8, and 9).

Chart description: Column chart displaying the quantity of ETF buying and selling within the secondary market in comparison with the quantity of main market exercise within the U.S., Europe, and Asia-Pacific. The quantity of secondary market exercise is much larger than main exercise, which signifies that most ETF buying and selling takes place on an change between patrons and sellers and doesn’t impression the underlying securities of the ETF.

iSHARES SECONDARY MARKET TRADING STATS

Within the fourth quarter of 2022, the typical each day buying and selling quantity in U.S. iShares ETFs was $38.7 billion, greater than the Q3 2022 common of $36.2 billion.

In Europe, the typical each day buying and selling quantity in iShares ETFs was $4.8 billion, greater than the Q3 2022 common each day quantity of $4.6 billion.

In Asia-Pacific, the typical each day buying and selling quantity in iShares ETFs was $0.13 billion, barely decrease than the Q3 2022 common each day quantity of $0.14 billion (Determine 10).

Determine 10: Common each day volumes for iShares ETFs²¹

Chart description: Column chart displaying the typical each day quantity (ADV) of ETF buying and selling within the U.S., Europe, and Asia-Pacific. Whereas volumes have typically elevated compared to Q3 2022, the ADVs for world ETFs stay elevated from historic averages.

Bid-ask spreads (a part of buying and selling prices for buyers), are impacted by elements comparable to liquidity, volatility, and the effectivity of the ETF ecosystem.

Within the U.S., bid-ask spreads in iShares ETFs widened to 12.4 foundation factors (bps) in This autumn, on common. In European-listed iShares ETFs, spreads barely widened in This autumn to 18.4 bps on common. In Asia-Pacific-listed iShares ETFs, spreads tightened to 23.1 bps on common (Determine 11).

Determine 11: Common iShares ETF bid-ask spreads (bps)²²

Chart description: Column chart displaying the typical bid-ask unfold (a part of an ETF’s buying and selling price) for iShares ETFs within the U.S., Europe, and Asia-Pacific. Bid-ask spreads barely widened for U.S.-listed iShares ETFs in This autumn 2022.

ETF FLOWS TYPICALLY HAVE MINIMAL IMPACT ON STOCKS

Traders can assess the impression of main market exercise on the costs of underlying shares by way of a metric referred to as “imputed circulation.” This metric estimates the proportion of all inventory buying and selling that outcomes from ETF creations or redemptions; that means, imputed circulation is an approximation for a way a lot inventory buying and selling is generated by ETF inflows and outflows.

The impression is usually modest. From the interval December 2020 by way of December 2022, roughly 5.6% of buying and selling quantity in U.S. equities has been attributable to ETF exercise, whereas in Europe, simply 1.9% of buying and selling in particular person European shares has been attributable to ETF flows. In Asia-Pacific, this determine is 1.4% (Figures 12, 13, and 14).

Figures 12-14: Proportion of inventory buying and selling on account of ETF flows²³

Chart description: Line charts displaying each the entire and common imputed circulation within the U.S., Europe, and Asia-Pacific. Imputed circulation is an estimation of how inventory buying and selling is generated by ETF inflows and outflows. The charts present that imputed circulation is beneath 6%, on common, in all areas.

2022 IN REVIEW

• In a turbulent yr for world markets, buyers continued to make use of ETFs at an growing price, with world ETF buying and selling volumes reaching report ranges. For instance, within the U.S, ETFs represented over 32% of whole fairness quantity traded on common, up from 25% in 2021.²⁴
• Regardless of market choppiness, world ETF buying and selling in 2022 was typically orderly, with bid-ask spreads throughout world ETFs staying near their 2021 ranges. Bid-ask spreads in world iShares ETFs have been practically 40% tighter than trade averages.²⁵

RECORD ETF TRADING ACTIVITY AROUND THE GLOBE

Whereas ETF flows declined year-over-year, ETF buying and selling exercise in 2022 was the biggest on report, surpassing full-year 2021 ranges by the top of Q3.

International buyers traded $53.8 trillion in ETFs this yr, an ADV of $216.9 billion, versus $171 billion in 2021.²⁶ This was constant throughout areas, with information set within the U.S., Europe, and Asia-Pacific. Particularly, ADV for world fastened earnings ETFs was the biggest proportion change by asset class, with a 36% improve year-over-year (Determine 15).

Determine 15: Common each day volumes of world ETFs ($billions)²⁷

Chart description: Column chart displaying common each day volumes of world ETFs by asset class. This chart showcases the expansion in common each day volumes, notably in 2022.

ETF buying and selling quantity as a proportion of whole fairness buying and selling quantity was elevated throughout areas in 2022 as buyers more and more turned to ETFs to precise market views. This was notably obvious on buying and selling days that coincided with massive macroeconomic occasions. For instance, on the times of Client Worth Index (CPI) releases and Federal Reserve Open Market Committee (FOMC) assembly minutes, which are inclined to have vital implications for U.S. financial coverage, U.S. ETF volumes as a proportion of whole fairness volumes spiked (Determine 16).

Determine 16: U.S. ETFs as % of whole fairness buying and selling quantity throughout notable macroeconomic occasions²⁸

Chart Description: Line chart displaying common each day volumes of U.S. listed ETFs. This chart showcases the expansion in common each day volumes, notably in 2022. The chart additionally exhibits U.S. ETF buying and selling as a proportion of total fairness market buying and selling volumes This chart exhibits that ETF buying and selling quantity as a proportion of whole fairness buying and selling quantity was considerably greater in days with both FOMC assembly minutes releases or Client Worth Index (CPI) releases.

ETF TRADING COSTS WERE RESILIENT

Regardless of quite a few headwinds and protracted volatility throughout a number of asset courses, world ETF bid-ask spreads stayed tight.

When volatility is excessive, ETF market high quality may be challenged; for instance, buying and selling prices (bid-ask spreads) could improve. Nevertheless, in 2022, world ETF markets have been resilient with common bid-ask spreads of 29.1 bps. That is above common bid-ask spreads in 2021 (23.8 bps)–a a lot much less risky yr for markets–however beneath 2020 averages (32.1bps).

Common bid-ask spreads for world iShares ETFs have been additionally barely above their 2021 figures, however nicely below 2020 averages (Determine 17).

Determine 17: Common iShares and trade world ETF bid-ask spreads (bps)²⁹

Chart Description: Column chart displaying the typical bid-ask unfold (a part of an ETF’s buying and selling price) for world iShares ETFs in contrast with the ETF trade. Bid-ask spreads barely widened for iShares and trade ETFs in 2022.

International iShares ETF bid-ask spreads have been constantly tighter than the trade common throughout each equities and glued earnings during the last three years. In 2022, common world fairness iShares ETF bid-ask spreads have been 15.7bps in contrast with the trade common of 30bps.

In fastened earnings, common world iShares ETF bid-ask spreads have been 16.3bps in 2022, in contrast with an trade common of twenty-two.3bps (Determine 18).

Determine 18: Common iShares and trade world ETF bid-ask spreads by asset class (bps)³⁰

Chart Description: Column chart displaying the typical bid-ask unfold (a part of an ETF’s buying and selling price) for world iShares ETFs in contrast with the ETF trade for each fairness and glued earnings ETFs. Bid-ask spreads barely widened for iShares and trade ETFs in 2022.

A LOOK AT RETAIL PARTICIPATION IN ETFs

• ETF buying and selling volumes pushed by retail buyers in 2022 have been essentially the most on report. As of Q3, retail buyers had already traded over $6.6 trillion in ETFs, over 30% greater than what they traded in all of 2021.³¹
• Retail buyers accounted for 15% of all ETF buying and selling volumes in 2022, however remained the next proportion in sure segments, like levered and inverse change traded merchandise (ETPs), the place they represented practically 34% of all ETP quantity.³²

© 2023 BlackRock, Inc. All rights reserved.

¹ See footnotes 5-16 for reference.

² As of December 31, 2022. Supply: Bloomberg, BlackRock.

³ The Cboe Volatility Index (VIX) is a real-time index that represents the market’s expectations for the relative energy of near-term worth modifications of the S&P 500® Index (SPX). As a result of it’s derived from the costs of SPX index choices with near-term expiration dates, it generates a 30-day ahead projection of volatility. Volatility, or how briskly costs change, is usually seen as a solution to gauge market sentiment, and specifically the diploma of concern amongst market members.

⁴ A foundation level (bp) is one hundredth of 1 %. As of December 31, 2022. Supply: TAQ Refinitiv.

⁵ As of December 31, 2022. Fairness (ex-ETFs) represented by the market capitalization of the Russell 3000 index. Supply: Bloomberg.

⁶ As of December 31, 2022. Supply: BlackRock, Markit.

⁷ As of June 30, 2022. Supply: Financial institution for Worldwide Settlements (BIS).

⁸ As of December 31, 2022. Supply: BlackRock, Markit.

⁹ As of December 31, 2022. Fairness (ex-ETFs) represented by the market capitalization of STOXX Europe 600 index. Supply: Bloomberg. Cboe International Markets.

¹⁰ As of December 31, 2022. Supply: BlackRock, Markit

¹¹ As of April 30, 2022. Excellent debt issued by the residents of Euro space. Supply: European Central Financial institution.

¹² As of December 31, 2022. Supply: BlackRock, Markit.

¹³ As of December 31, 2022. Fairness (ex-ETFs) represented by the market capitalization of the MSCI Asia Pacific All Nation index. Supply: Bloomberg.

¹⁴ As of December 31, 2022. Supply: BlackRock, Markit.

¹⁵ As of June 30, 2022. Supply: Financial institution for Worldwide Settlements (BIS).

¹⁶ As of December 31, 2022. Supply: BlackRock, Markit.

¹⁷ As of December 31, 2022. Supply: Bloomberg, BlackRock.

¹⁸ As of December 31, 2022. Supply: Bloomberg, BlackRock, Markit.

¹⁹ As of December 31, 2022. Supply: Bloomberg, BlackRock, Markit.

²⁰ As of December 31, 2022. Supply: Bloomberg, BlackRock, Markit.

²¹ As of December 31, 2022. Supply: Bloomberg, BlackRock.

²² A foundation level (bp) is one hundredth of 1 %. As of December 31, 2022. Supply: TAQ Refinitiv.

²³ As of December 31, 2022. Supply: Bloomberg, BlackRock.

²⁴ As of December 31, 2022. Supply: Bloomberg, BlackRock.

²⁵ A foundation level (bp) is one hundredth of 1 %. As of December 31, 2022. Supply: TAQ Refinitiv.

²⁶ As of December 31, 2022. Supply: Bloomberg, BlackRock.

²⁷ As of December 31, 2022. Supply: Bloomberg, BlackRock.

²⁸ As of December 31, 2022. Supply: Bloomberg, BlackRock.

²⁹ A foundation level (bp) is one hundredth of 1 %. As of December 31, 2022. Supply: TAQ Refinitiv.

³⁰ A foundation level (bp) is one hundredth of 1 %. As of December 31, 2022. Supply: TAQ Refinitiv.

³¹ As of November 30, 2022. Supply: SEC Rule 605 Knowledge, Bloomberg. Rule 605 information requires wholesale market makers to supply transparency into their orders and executions.

³² As of November 30, 2022. Supply: SEC Rule 605 Knowledge, Bloomberg. Rule 605 information requires wholesale market makers to supply transparency into their orders and executions.

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Shares of ETFs could also be purchased and bought all through the day on the change by way of any brokerage account. Shares will not be individually redeemable from an ETF, nevertheless, shares could also be redeemed instantly from an ETF by Licensed Individuals, in very massive creation/redemption items.

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Originally published by iShares.

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