BlackRock, the asset manager behind the iShares range of exchange-traded funds, has released commentary related to assets flows within their Europe-listed ETFs following the Federal Reserve’s decision to increase short-term interest rates to a range of 0.75% and 1.00%.
Following the March FOMC meeting the Federal Reserve has stated its intention to raise interest rates another two times in 2017.
The firm found that emerging markets, which typically see a decline when the Fed raises rates, actually outperformed the broad equity market and was the most actively-traded asset class during the trading session on 16 March 2017 – the iShares MSCI Emerging Markets UCITS ETF (IEEM) traded a whopping 627% of its average daily volume during the day.
Wei Li, Head of iShares EMEA Investment Strategy at BlackRock, said: “The reason for this may be that while markets had priced in the rate rise, the ‘dot plot’, which indicates that two more hikes are expected for the rest of the year, remained unchanged. This was read by the market as dovish, given how far the markets had already priced in the rate rise.”
The commentary noted that global flows had picked up in both emerging markets fixed income and equity since the start of the year; however, European investors had been buying emerging markets debt but selling equities for most of this period. The strong trading statistics recorded on 16 March marked a significant turnaround in European investor sentiment.
Commenting on the fundamental attractiveness of emerging markets as an investment, Li added: “We have a positive view on emerging markets equities, supported by a better growth picture and still attractive valuations. The Fed’s rhetoric further boosts the investment case.”
A bounce-back in commodities also helped trigger a return of flows into high yield and gold ETFs, according to BlackRock.
Patrick Mattar, iShares EMEA Capital Markets, commented: “A weaker dollar has triggered a rally in commodities including oil, prompting some investors to return to US high yield bond ETFs that have experienced a sell-off so far in March. The iShares $ High Yield Corporate Bond ETF (IHYU) saw increased inflows, after five sessions of outflows.”
The top five most traded iShares ETFs on major European exchanges on 16 March 2017 are listed below:
iShares MSCI EM UCITS ETF USD (IEEM)
iShares DAX ETF (DAXEX)
iShares JP Morgan $ EM Bond UCITS ETF (IEMB)
iShares $ High Yield Corp Bond UCITS ETF (IHYU)
iShares MSCI Europe UCITS ETF (IMEU)