BlackRock ETP Landscape: Despite a rollercoaster year for sentiment, a record $756B was added to global exchange-traded products (ETPs) in 2020, surpassing the previous record set in 2017 ($660B).
Global ETP Flows December 2020
Equity flows recovered from a dip in March to gather $410B for the year, spurred on by record buying after the US election in November. In fixed income, global flows matched the previous year’s total ($257B), while the $64B of inflows into commodity ETPs marked another record in a remarkable year for flows.
Key themes in 2020:
- Barbell approach: sector flows highlight barbelling by investors
- Records tumble: multiple fixed income exposures see record flows
- EM recovery: emerging market flows pick up late in the year
- Sustainable sets the standard: flows surpass all previous years combined
- A golden year for commodities: record year for precious metals
- Barbell approach
- Strong equity inflows into the end of the year helped push the headline figures to a strong finish. Covid vaccine progress and the removal of political uncertainty following the US election drove large scale buying in November (including a record $65.2B into US equities).
- Sector ETPs had a standout year with record flows across defensive and cyclical exposures – including technology, healthcare, industrials, energy and consumer discretionary – showing a barbell approach. As investors added back to risk in April and May, sectors benefiting from accelerated structural trends and quality characteristics proved popular. Healthcare ETPs gained a record $17.1B of inflows across the year, while technology also stood out – inflows hit a record $45.8B last year, more than the total flows into the sector from 2015-2019.
- The barbell approach was also evident in factor flows: value and quality were the two most popular factors in 2020, with inflows of $6.7B and $6.6B, respectively. Headline factor flows fell vs. 2019, due to record outflows from minimum volatility ETPs (-$16.8B vs. $25.9B in 2019), which – coupled with the quality inflows – suggested a greater propensity for risk among investors, even in more defensive allocations.
- Records tumble
- Increasing flows into fixed income ETPs became a stalwart theme across our flow commentaries in 2020. Last year fell just shy of a record year for fixed income ETPs as investors took profits later in the year, but records did tumble within the asset class. Investment grade (IG) was far and away the standout exposure, with global inflows totalling a record $73.6B – almost 30% of all fixed income flows across 2020.
- $47.9B of the IG inflows came between April and June – including a record $21.2B in June alone – when investors allocated to credit with strong conviction off the back of central bank support. Similarly, high yield (HY) flows hit record levels in the middle of the year, although outflows from September-December tempered the headline figure to leave HY flows at $24.8B for the year, marginally down on the 2019 total.
- The changing role of government bonds in portfolios led to the lowest inflows into rates in three years, with just $31.4B added in 2020. This was partly driven by record outflows in November (-$7.3B), as risk-on conviction really took hold. Meanwhile, allocations to inflation linkers increased more than fivefold vs. 2019 to a record $17.5B, as investors adjusted portfolios to account for rising inflation as economies began to reopen.
- Sustainable set the standard
- 2020 can be heralded as the landmark year for sustainable ETP flows, with US and EMEA listed products gathering $85B combined vs. $28B in 2019. During market volatility in early 2020, sustainable flows remained resilient amid outflows from the broader market, with $3.5B added to sustainable ETPs between midFebruary and mid-March. Subsequently, EMEA flows remained flat through April and May, while US-listed products continued to see increasing inflows. Flows into EMEA-listed ETPs began to return to pre-crisis levels towards the end of May, however, and continued to strengthen throughout the rest of the year.
- November and December were record breaking months for EMEA-listed sustainable ETPs, with $20B of inflows (38% of the 2020 total), likely spurred on by the US election. Throughout the year, US-listed sustainable ETPs also raised money as a result of increased model portfolio allocations.
- EM recovery
- Emerging market (EM) equity flows – quite astoundingly – closed out 2020 flat, after heavy outflows earlier in the year were offset by significant buying as part of the broad cyclical rotation in the second half of 2020. Delving a little deeper, international investor conviction largely drove the positive side of the flows, with $7.9B added to EMEA-listed ETPs and $1.7B to US-listed ETPs, vs. $12.4B out of APAC-listed EM funds.
- At the headline level, investors appeared to favour broad and regional EM exposures at the expense of single country ETPs – but this data is slightly skewed by outflows from APAClisted single country ETPs. In fact, in EMEA, inflows into EM equity ETPs were fairly evenly split across broad, regional and single country exposures, while in the US there was a clear preference for single country ETPs. Countries in EM Asia, particularly China, proved popular among international investors.
- Flows into EM debt remained relatively stable over the course of the year, with investors favouring hard currency at the start of the year before tilting towards local currency into yearend. China and India proved the two most popular countries, with inflows of $4.6B and $2.0B, respectively (a record year for the latter). While flows into Chinese bonds were marginally lower compared to 2019, inflows in 2020 were almost exclusively into EMEA-listed products ($6.2B), amid APAC-listed outflows – a stark contrast from the previous year.
- A golden year for commodities
- Record commodity flows in 2020 were due almost entirely to precious metal buying, with record inflows for gold (+$44.9B) and silver ETPs (+$5.1B). As the pandemic spread earlier in the year, risk-off sentiment drove buying of precious metals. Inflows continued up until November, before gold and silver flows took a hit from increasingly risk-on sentiment, with record outflows of $6.8B from gold in November.
- A special mention also goes to crude oil ETPs, which finished the year with inflows of $11.5B, just shy of 2015’s record of $11.7B. Increased oil price volatility led to large scale allocations in March and April ($17.7B of inflows across the two months), which were partly offset by continuous outflows from JuneDecember.