BlackRock Global ETP Landscape Report and European-Domiciled ETP Trend August 2017

Global ETP Highlights….

Patrick Mattar, from the capital markets team at iShares

Global ETPs gathered $47.4bn in August in a month marked by positive economic data, but also bouts of renewed volatility. Flows were led by developed markets (DM) equity exposures, and bolstered by fixed income funds. Year-to-date flows grew to $419.2bn, exceeding 2016’s full-year flow record of $378.4bn.

U.S. equity ETPs brought in $9.5bn spurred by strong corporate earnings and economic growth and concentrated in large caps with $8.6bn. Value and momentum single-factor smart beta funds brought in $0.2bn each, driving year-to-date flows to record levels. Notably, these funds are also seeing steady growth within broad DM and European equities (see Spotlight below).

Overall, broad DM equities captured $7.6bn (including factor funds) led by EAFE funds with $3.2bn and Japan equities collected $8.0bn, chiefly driven by purchases by the Bank of Japan.

Emerging markets (EM) equity flows maintained momentum with $6.2bn for the month, including broad exposures with $3.6bn and with $1.2bn in South Korean equities, despite tensions with North Korea. EM debt flows cooled to $0.5bn in August, but year-to-date flows of $14.8bn mean the category is still ahead of last year’s full-year record.

Fixed income brought in $12.2bn overall, led by investment grade corporates with $4.2bn, including inflows to shortmaturity funds coming ahead of the Jackson Hole central bank meeting.

Lastly, heightened uncertainty stoked flows to gold funds, which rebounded with flows of $1.5bn.

Black Rock European ETP Trend August 2017

Monthly net flow into EMEA-listed ETPs slows to $4.9B

The $4.9B gathered by EMEA-listed ETPs in August represented a significant slow down on the July figure of $9.2B as tensions escalated on the Korean peninsula and many European investors hit the beach.

Fixed income (FI) was this month’s winning asset class with $2.5B of inflows, while equities came in close behind, gathering $2.4B. This is only the second month in the last eleven that equity flows have been behind fixed income.

EMEA-listed gold funds continued to attract inflows and US-listed gold funds also gathered assets after significant outlfows in July.

Patrick Mattar, from the iShares EMEA capital markets team at BlackRock, comments on the five key stories behind the European ETP flows in August:

Key themes this month:

  1. Ooh la la
  • August was another positive month for European equities. Despite being down on July’s figure, the $1.1B that went into EMEA-listed ETFs mean there have now been 12 consecutive months of European equity ETP inflows – the longest inflow run on record.
  • We also witnessed the continuation of a trend highlighted last month: the bulk of the flow into European equities across all listing went into EMEA-listed ETPs. US-listed equivalents had a monthly outflow (-$120m) for only the second time since November 2016.
  • It seems clear that US investors’ appetite for European equities has waned somewhat in the last couple of months while European investors have continued to allocate and with scale.
  1. The trend is your friend
  • There was a $300m net inflow to EMEA-listed momentum factor ETFs in August, the largest month for flows into momentum exposures ever. The majority went to world equity momentum ETFs.
  • Over the last 12 months, there has been something of a rotation out of the low volatility factor towards the value factor. From the start of the year to end-July, there were inflows of $3.0B into EMEA-listed momentum ETFs. Since July, flows into value factor ETFs have stalled, while momentum factor funds have had record inflows.
  • The momentum factor provides exposure to stocks in a given universe that have performed well in the recent past. The pick up in flows to this area suggests that some investors are currently living by that old mantra ‘the trend is your friend’.
  1. Banking on financials
  • August was the sixth inflow month in a row for European financials sector ETPs. It also means that the last six months are the largest ever in terms of inflows for these funds, many investors may be focussing on depressed valuations after a long period of underperformance.
  • There were outflows from more-defensive Europe sector ETPs with the largest withdrawals from industrials and consumer services funds, European cyclicals seem to be in vogue.
  • Concurrently, open interest in Eurex-listed Eurozone banks futures contracts is close to all-time highs (€7.6B). European banks indices have had strong upward moves recently which suggests many futures positions have been dominated by bullish investors. With the exaggerated skew toward ‘long’ futures contracts increasing roll costs on these contracts, investors with a positive view on European financials may start to look to ETFs for a more efficient exposure.
  1. Fixed income fragmentation
  • € investment grade (IG) and emerging market debt (EMD) ETPs have been the dominant inflow groups within FI in Europe this year. Combined, these products have attracted $11.2B of the total $22.1B added to EMEA-listed FI ETPs in 2017.
  • August was different: €IG and EMD ETPs contributed only 37% of the total EMEA FI flows having contributed 67% of the flows over the three preceding months. The absolute flow values are also seemingly on a slight decline for both categories (see chart).
  • Of the other FI categories, European sovereign and $IG ETPs were stand outs in August, attracting a combined $900m. On this evidence, it appears that investor views on FI are currently mixed with no clear consensus.
  1. Gold rush
  • EMEA-listed Gold ETPs attracted $0.3B in August, continuing a strong period for the yellow metal: there have been inflows every month and a cumulative $3.7B of inflows into EMEAlisted gold ETPs this year.
  • We have previously highlighted that US and EMEA investors appear to have had opposing views on gold this year. In August, this pattern reversed as there were inflows into both. US-listed gold ETPs attracted $1.1B.
  • In a month characterised by rising tensions between the US and North Korea it appears that US investors have started to shelter in gold.

Source: ETFWorld

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