The burgeoning Latin American wealth industry’s growing appetite for ETFs helped push BlackRock’s iShares assets over the $100 billion mark in Latin Amerca and Iberia in 2017.
In its latest annual report, iShares reported that 2017 had been a record year for its global ETF business with flows of $246 billion.
Nicolas Gomez, BlackRock's head of Latin America and Iberia iShares, told Citywire Americas that flows from these regions amounted to $17 billion last year. At the start of 2017, iShares assets in Latin America and Iberia were at $70 billion and by the end of December had reached $100 billion, encompassing the flows and market appreciation.
Latin American clients account for around 77% of the $100 billion figure and while ETF demand in the region have historically been dominated by pension fund, Gomez said the local wealth industry was increasingly turning to ETFs for their international exposure.
‘What we’ve been seeing is that over time the benefits and the usage of ETFs has been filtering down to the other segments of the market.
‘The local asset management industries are starting to use more ETFs, insurance companies, central banks, and the wealth management segment and family offices. Wealth channels are growing very fast.’
This year, the flows from Latin America were an even 50/50 split between institutional and wealth players, the highest they’ve ever been, said Gomez.
The trend of local asset managers or private banks launching their own fund of ETFs for their clients is helping contribute to this trend, he added.
‘Five years ago, I would have said around 90% of our assets are institutional and now around 66% of our assets are institutional, that’s because the wealth channel is growing, both investors buy the product directly or through mutual funds of the asset management arm of their bank.’
Among the institutional players, Mexican, Peruvian and Colombian pension funds are the biggest advocates of ETFs, with around half or over of their international exposure run through ETFs, said Gomez. In comparison, Chilean AFPs favor active funds with just around 15% of their international exposure concentrated in ETFs.
In 2017, the three most popular ETF products among Latin American and Iberian clients were ones investing in emerging markets, Europe and Brazil, said Gomez.
‘Last year, there were a lot of flows into our broad emerging market funds and into Europe. There was also money flowing out of our S&P 500 product, coming out of the US and being allocated to Asia, emerging market and Europe but also a trend toward US factor products,’ added Gomez.
The smart beta factor ETFs proved popular among his clients looking for alpha in such an efficient US market.
‘It’s the market that people watch the closest and where people start to innovate in that market but I think that over time people are going to do smart beta factor exposure in Europe and in the future in emerging market.