Flow & Tell with iShares | Dec 2021


Gargi Pal Chaudhuri Jan 6, 2022

2021 proved to be a record year for ETFs. Not only did inflows across U.S.-listed ETFs nearly double the previous record, but numerous use cases and trends emerged that detail the importance of ETFs for investors accessing markets. From “meme stock” mania to the growth in sustainable assets, this year’s biggest trends played out in ETFs.

10 ETF FLOW THEMES THAT DEFINED 2021

U.S.-listed ETFs saw record inflows in 2021 as the industry took in $933.5 billion, an increase of 85% over last year’s record ($486 billion).1 Investors favored U.S. equity strategies most of all, with the three largest S&P 500-tracking ETFs collectively surpassing $1.0 trillion in assets under management last year — nearly tripling from $375 billion five years ago.2

ETF asset class flows

Chart showing ETF asset class flows

Source: BlackRock, Markit. Groupings are determined by BlackRock, Markit. As of December 31, 2021.


1 Source: BlackRock, Bloomberg. Groupings are determined by BlackRock, Markit. As of December 31, 2021.

2 Source: BlackRock, Bloomberg. As of December 31, 2021. Three largest S&P 500-tracking ETFs by AUM are iShares Core S&P 500 ETF (IVV), SPDR S&P 500 ETF Trust (SPY), Vanguard S&P 500 ETF (VOO).

Despite the fact the potential for higher interest rates appeared to be a prime concern for investors in 2021, and the fact that broad index-tracking bond ETFs such as the iShares Core U.S. Aggregate Bond ETF (AGG) experienced negative returns, bond ETFs gathered $202 billion in new assets last year, in line with the previous year. For perspective, interest rates moved lower and AGG returned 7.4% in 2020.3

Fixed income flows for much of 2021 centered on short-dated ETFs, which tend to be less sensitive to rising interest rates. Short-dated bond ETFs amassed $53.5 billion from Q1 to Q3; however, in Q4, as fear of emerging virus variants increased, short-dated bond ETF inflows slowed to $7.3 billion.4 In contrast, flows into medium- and long-term bond ETFs increased to $7.4 billion and $6.4 billion, respectively, in Q4 2021 — essentially matching inflows from the previous three quarters combined.5

Reflation to duration

Chart displaying cummulative quarterly flows

Source: BlackRock, Markit. Groupings are determined by BlackRock, Markit. As of December 31, 2021.


3 Source: BlackRock, Bloomberg. As of December 31, 2021. Performance data represents past performance and does not guarantee future results. Investment return and principal value will fluctuate with market conditions and may be lower or higher when you sell your shares. Current performance may differ from the performance shown. For most recent month-end performance and standardized performance, click here.

4 Source: BlackRock, Markit. Groupings are determined by BlackRock, Markit. As of December 31, 2021.

5 Source: BlackRock, Markit. Groupings are determined by BlackRock, Markit. As of December 31, 2021.

Inflation was a key theme of 2021, and ETFs that offer potential inflation hedges gathered meaningful inflows. Within fixed income, the inflation category saw $41.3 billion in inflows, about 1.5 times the cumulative flow seen over the last four years combined.6 Other “reflation” narrative ETF flow-gatherers such as the energy sector stocks, “value” factor, and real assets pulled in $14.1 billion, $17.5 billion and $30 billion, respectively.7

Notably absent were flows into gold. This precious metal has long been considered an important inflation hedge, but lost its luster in 2021, reporting outflows of $11.3 billion.8 Instead, investors seemingly flocked to products that hold a diversified basket of commodities. For example, the iShares GSCI Commodity Dynamic Roll Strategy ETF (COMT) grew assets under management by more than 1,100% in 2021 compared to a 34% decline in assets in 2020.9


6 Inflation category determined by BlackRock, Markit, defined as Treasury Inflation Protection Securities (TIPS) ETFs.

7 Source: BlackRock, Markit. As of December 31. 2021. Groupings are determined by BlackRock, Markit. “Real assets” determined by BlackRock, defined as real estate sector, infrastructure, and broad market commodity ETFs.

8 Source: BlackRock, Markit. Groupings are determined by BlackRock, Markit. As of December 31. 2021.

9 Source: BlackRock, Markit. As of December 31. 2021.

Flows into sustainable ETFs were meaningful in 2021 as some $37.9 billion moved into sustainable ETFs across all asset classes and across all styles and themes.10 BlackRock US Carbon Transition Readiness ETF (LCTU) was the largest ETF launch at $1.3 billion; net inflows into iShares ESG Aware MSCI EAFE ETF (ESGU) reached $7.0 billion, followed by iShares ESG Aware MSCI EAFE ETF (ESGD) at $3.0 billion and iShares Global Clean Energy ETF (ICLN) at $2.8 billion.11


10 Source: BlackRock, Markit. Groupings determined by BlackRock, Markit. As of December 31, 2021.

11 Source: BlackRock, Markit. As of December. 31, 2021.

Increased investor preference for selectivity led to increased usage of sector and industry funds.12 In particular, the technology and financial sectors were the largest gatherers of assets. Both sectors demonstrated strong earnings in Q2 and Q3, and investors appeared to seek out sectors that could exert pricing power at a time of fast-rising inflation or profit from higher interest rates.

Sector ETF flows

Chart displays sector ETF flows from 2017 to 2021

Source: BlackRock, Markit. As of December 31, 2021.


12 Source: BlackRock, Bloomberg. Determined as sector ETF gross flows as a percentage of overall ETF gross flows. As of December 31, 2021.

Where did flows and performance diverge? Clean energy. In 2021, despite being down 24%, ICLN’s assets under management grew by 300% as the ETF gathered $2.9 billion in flows.13

Relatedly, China-focused stock ETFs including iShares China Large-Cap ETF (FXI), iShares MSCI China A ETF (CNYA) and iShares MSCI China ETF (MCHI) gathered $1.9 billion, $323 million, and $969 million, respectively, despite the performance challenges and volatility throughout the year.14

On the other side of the spectrum, iShares Inflation Hedged Corporate Bond ETF (LQDI), iShares Interest Rate Hedged High Yield Bond ETF (HYGH) and BlackRock High Yield Muni Income Bond ETF (HYMU) gathered only $170 million collectively despite 2021 annual returns above 5% in a fixed income world which was starved for positive returns.15


13 Source: BlackRock, Markit. As of December. 31, 2021. Performance data represents past performance and does not guarantee future results. Investment return and principal value will fluctuate with market conditions and may be lower or higher when you sell your shares. Current performance may differ from the performance shown. For most recent month-end performance and standardized performance, click here.

14 Source: BlackRock, Markit. As of December 31, 2021.

15 Source: BlackRock, Markit, Bloomberg. As of December 31, 2021. Performance data represents past performance and does not guarantee future results. Investment return and principal value will fluctuate with market conditions and may be lower or higher when you sell your shares. Current performance may differ from the performance shown. For most recent month-end performance and standardized performance, click here.

A bright spot in emerging markets in 2021 was a fund that seeks to separate China exposure from other developing economies. The iShares MSCI Emerging Markets ex China ETF (EMXC) gathered nearly $2 billion in inflows in 2021, and the ETF’s assets under management grew by nearly 1,200%. EMXC appeared to be a solution for investors seeking to allocate to emerging market equities without China, possibly to make room for a standalone China allocation.16


16 Source: BlackRock, Markit. As of December 31, 2021.

Fixed income factors came into focus this year with iShares Fallen Angels USD Bond ETF (FALN) growing its assets under management from $410 million to $4.9 billion. “Fallen angels” are companies that have been downgraded from investment grade to high yield status by ratings agencies. Investors appeared to believe the “value” and “quality” story that FALN highlights as these former investment grade companies potentially offer higher quality debt exposure due to their former status but at a higher yield due to their fall from grace.

Perhaps related to the meme stock frenzy in the beginning of the year, ETFs saw lower volumes in January and February. While the yearly average of ETFs as a percentage of the equity market was 25%, ETFs made up 22% of the market in January and February.17 ETF trading in proportion to the market rose to 27% in March, when meme stocks lost steam. There are some days in February where ETFs as a percentage of the equity tape dropped to as low as 18% as retail investors seemed to turn their attention to single-stock names and institutional investors took notice.18

ETFs saw decreased trading during the height of “meme stocks”

Chart showing decreased trading of meme stocks in 2021

Source: BlackRock, Markit, Bloomberg. As of December 31, 2021.


17 Source: BlackRock, Bloomberg. As of December 31, 2021.

18 Source: BlackRock, Bloomberg. As of December 31, 2021.

The Biden Administration signed a $1.2 trillion infrastructure bill meant to invest in infrastructure projects around the U.S. As the bill moved through Congress, investors appeared to seek out the iShares U.S. Infrastructure ETF (IFRA), which holds shares of companies could benefit from a potential increase in domestic infrastructure activities such as new roads and bridges. IFRA received significant investor attention, growing assets under management by 658% in 2021.19

Actively managed ETFs accounted for more than 10% of all ETF inflows in 2021. and offer unique opportunities for investors to gain exposure to ETFs that seek outperformance in comparison to a benchmark or a specific investment objective.20


19 Source: BlackRock, Markit. As of December 31, 2021.

20 Source: BlackRock, Markit. Groupings are determined by BlackRock, Markit. As of December 31, 2021.

Gargi Pal Chaudhuri

Gargi Pal Chaudhuri

Head of iShares Investment Strategy Americas at BlackRock

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