BlackRock ETP Landscape: Global flows into exchange-traded products (ETPs) totalled $28.4B in February –a drop of 42% from January, when investors added $67.3B…….
Global ETP Flows January 2020
The reduction in overall flows was driven by large outflows in the last week of the month, when investors sold $37.2B across asset classes, making it the worst week for outflows since records began.
Amid market volatility, investors sold $31.5B of equity ETPs and $6.2B of fixed income (FI) ETPs. Commodity ETPs were the only asset class to gather inflows in the week ($1.8B), with the majority of this allocated to gold ETPs.
Key themes in February:
- Coronavirus drives outflows: despite record equity outflows, structural trends like ESG continue
- Turning to defence in FI: outflows from credit but rates gain inflows
- Golden rule: gold flows continue to increase
Coronavirus drives outflows
- The last week of February ranked as the worst week for equity outflows since records began in 2011, with investors selling $31.5B. February started as a strong month for flows, with investors adding $35.6B in the first three weeks, before coronavirus fears reduced overall flows into equity ETPs to only $4.1B in February, down from the $37B added in January.
- Most of the selling occurred in US equity ETPs, with investors selling $21.7B of the exposure in the last week of the month. This marked the first outflow week for US equities this year, and the third-biggest outflow week on record. Despite selling late in the month, February remained a net inflow month for US equities (+$0.7B). In contrast, emerging market (EM) equities registered outflows of $8.1B.
- Longer-term trends have continued to play a role in flows, despite market volatility, with sustainable ETPs gathering $5.7B of inflows in February. This continues a strong flow trend, with net inflows into sustainable ETPs in every week of this year, despite broad equity outflows.
Turning to defence in FI
- Fixed income ETP flows fared much better in February (+$17.1B) than equity flows. However, like equities, investors sold the exposure heavily in the last week of the month (-$6.2B) –the second worst week for outflows since March 2014, when $8.5B exited the exposure. Rates ETPs were the biggest beneficiary for flows in February, gathering $10.5B – more than double the amount gathered in January ($4.4B).
- Sentiment towards credit dampened in February, with monthly outflows from HY ETPs hitting a new record (-$6.2B). This was the first net outflow month for the exposure since August 2019, with selling out of EMEA and US-listed HY ETPs. Investment grade (IG) continued to gather inflows, with investors buying $2.8B of the exposure globally, down from $4B in January. Beneath the surface, outflows of $0.2B from EMEA-listed IG ETPs contrasted with inflows of $2.1B into US-listed counterparts, with FI ETPs functioning as an effective liquidity tool amid heightened volatility.
- Emerging market debt (EMD) outflows were skewed towards local currency (LC) ETPs, with -$0.4B compared to -$0.3B from hard currency EMD in February.
- Commodity ETP flows increased from $5.1B in January to $6.1B in February. Year-to-date, commodity ETPs have captured $11.2B, which is already 62% of the total inflows into the exposure in 2019 ($18B).
- The majority of the February inflows were into gold ETPs (+$3.7B). Investors have continued to favour the commodity for diversification properties amid market volatility as well as a lower-for-longer interest rate environment. So far this year, the precious metal has gained $6.9B inflows, with seven consecutive weeks of inflows since mid-January. Despite increased interest in safe havens, silver ETPs gained negligible inflows in February.
- Crude oil ETPs also gained $2.2B of inflows in February, continuing the trend of positive flows from January, when investors added $0.9B to the commodity. While commodities are broadly viewed as a diversification tool, investors sold $0.1B of broad market commodity ETPs in February, preferring to allocate to gold ETPs for diversification.