Data suggests that low-cost exchange-traded funds and products mostly beat hedge funds for inflows and assets last year.

The world’s exchange-traded fund and products sector holds more assets than hedge funds, demonstrating how index-tracking vehicles that typically charge low fees have won over investors, even if markets have turned more challenging recently. 

Assets invested in ETFs and ETPs listed globally amounted to $4.82 trillion at the end of Q4 2018, following net inflows of $164.84 billion and market moves during the period. Total AuM fell by 0.49 per cent over the year. Meanwhile, hedge funds saw assets fall to $3.11 trillion, with net outflows of $22.5 billion during the quarter, with total AuM down by 3.24 per cent, according to ETFGI, the research firm.

There was $4.82 trillion invested in 7,620 ETFs/ETPs listed globally at the end of 2018, the report showed. (ETFs are typically open-ended, index-based funds bought and sold like ordinary shares on a stock exchange and offer broad exposure across developed, emerging and frontier markets, equities, fixed income and commodities. Exchange-traded products are products that have similarities to ETFs in the way that they trade and settle, but do not use an open-end fund structure.)

The HFRI Fund weighted composite index, produced by Hedge Fund Research, fell by 5.76 per cent in Q4 2018 compared with a fall of 13.52 per cent of the S&P 500 index (w/dividends), as many hedge funds strategies positioned for a market correction finally bore fruit. Despite this, investors still ploughed money into passive funds, with ETFs/ETPs attracting $164.84 billion in the final three months of last year.

The figures highlight debate on whether index-tracking funds, which have boomed on the back of a bull market in equities lasting a decade, will continue to do so if markets stall. Hedge funds, which are typically more expensive, have struggled in recent years, losing some of their vaunted reputation for generating returns in all conditions. 

Gold
Separately, the World Gold Council, an industry group association representing the gold sector, said holdings of gold-backed ETFs and similar products rose in January by 72 tonnes to 2,513 tonnes, equivalent to $3.1 billion in inflows, marking the fourth consecutive month of net inflows.