Daily Brief: ETFs And BlackRock Are Breaking Records (… Just No One Mention The Price War)

Daily Brief: ETFs And BlackRock Are Breaking Records (… Just No One Mention The Price War)

over 2 years ago3 mins

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Investors are having the time of their lives: fresh data out on Monday showed the amount of money invested in exchange-traded funds (ETFs) hit a record high in May.

What does this mean?

ETF investments topped $9 trillion for the first time last month, according to consultancy ETFGI. And thanks to rising demand for both bond ETFs and environmentally focused ones, BlackRock – the world’s biggest provider of ETFs – said it’s expecting that number to hit $15 trillion by 2025.

That suits the investment giant just fine: the amount of money its ETF business looks after hit its own all-time high of $3 trillion last month. Not that there’s any guarantee of surging profits, mind you: BlackRock’s noticed that Vanguard – the world’s second-biggest ETF provider – brought almost $40 billion more into its ETF business this year, and now the two are in an all-out price war.

Largest inflow on record

Why should I care?

The bigger picture: Active vs. passive.According to BlackRock, ETFs – which have historically passively tracked an index – account for just 3% of assets held in stock and bond markets globally. A much higher percentage is in more expensive active funds, whose managers research and invest in stocks and bonds they think will perform well. But those managers are under increasing pressure to meet in the middle and offer active ETFs, whose growing popularity could help the companies fend off BlackRock and Vanguard.

Zooming out: Short sellers vs. retail investors.

Speaking of which, new data out on Monday showed US active investment managers have gradually been reversing their short positions – that is, bets that certain stocks will fall – over the past year. That might have something to do with the constant government and central bank support, which has only been pushing stocks in one direction for the last 12 months. Or it might be in response to the GameStop saga, which left short-sellers with bruised pride and profits alike.

Short sellers have been taking bets off the table

Keep reading for our next story...

Ferrari's Going Electric, And Goldman Isn't Impressed

Ferrari image

Goldman Sachs changed its recommendation on Ferrari’s stock from a buy to a sell on Monday, and the Italian car company’s eco-friendly ambitions might be the main reason it runs out of juice.

What does this mean?

Ferrari’s negotiating a new stretch of track at the moment: the legendarily gas-guzzling auto giant recently announced the development of its first-ever all-electric vehicle (EV) and appointed a new, tech-savvy CEO. But according to Goldman Sachs, this shift in focus could be costly for investors in the short term.

The investment bank agrees a push toward EVs is important for Ferrari’s future, but it reckons the costs involved – an extra $50 million a year of spending between now and 2030 – will put a significant dent in the company’s profitability. In a rare reversal of fortunes, that prompted Goldman to downgrade its recommendation for Ferrari’s shares straight to a sell.

Ferrari subdued

Why should I care?

The bigger picture: Ferrari isn’t alone.

The EV transition has made carmakers some of the highest-spending companies out there right now: they’ve collectively spent more on research and development over the last decade than they’ve made in profit, according to Bloomberg. And all that new tech won’t necessarily pay off: Jaguar Land Rover-owner Tata Motors, for example, recently wrote off over $1 billion worth of previous research spending.

Auto revenue

For markets: Beware electric shocks.

The combined global market value of carmakers’ stocks doubled to more than $2 trillion in 2020, despite a stall in overall car sales. But investment firm Research Affiliates thinks shareholders are deluding themselves: almost all automakers’ stock prices have benefited from exciting EV developments, even though many are direct competitors. That means some of them are bound to lose out. Investors got a sharp reminder of that on Monday: electric truck maker Lordstown Motor's shares slumped after its top two executives resigned, days after the firm warned it was on the verge of running out of cash.

EV market value
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