ETF 2021 Outlook: Watch out for International Equity and Active ETFs

Most people are probably happy to waive goodbye to 2020 amid the COVID-19 pandemic, which played out in ways few could have possibly predicted. David Mann, our Head of Global Exchange-Traded Funds (ETFs) Capital Markets, isn’t going to make predictions about vaccines, mask-wearing or other such matters, but does offer his insights on ETF industry trends he sees taking shape.

January is a month of resolutions and prognostications, so it’s also time for my 5th annual ETF predictions column! You can find all prior editions (2020, 2019, 2018 and 2017) if you’d like to revisit them. You can also find my 2020 report card column here.

I must admit that there were a lot of mixed emotions in writing this year’s outlook column. On the one hand…2020. Ugh! I would most certainly put myself in the “let’s go ahead and turn the page on this dumpster fire of 2020” camp. On the other hand, my family is happy and healthy, and from an ETF perspective, 2020 was fantastic. When the dust settles, ETFs will have seen somewhere around half a trillion dollars of inflows for the year 2020.1 Astonishing!

Given that even a global pandemic cannot seem to slow down these markets, it would not surprise me if the trend of ETF inflows continues unabated. That possibility certainly helped drive several of my predictions for this year. Without further ado:

ETFs that hold international equities will account for over 50% of 2021 inflows

Here are the two relevant stats for US-listed equity ETFs that hold international stocks:2

  • They account for approximately 25% of ETF assets under management (AUM) in the United States
  • In 2020, they represented 26% of the ETF equity inflows.

I fully acknowledge that getting to 50% is a significant leap; however, there are some recent trends that could certainly help. Many international equity markets have lower valuations when compared to US equities. Worldwide, countries have handled their responses to the global pandemic very differently in terms of economic stimulus, which certainly helps the case for targeted single-country investing. Lastly, a new US administration may take a very different approach to international trade, which could also impact foreign currencies, a major factor in the returns of US ETFs that hold international stocks.