BlackRock, the world’s largest asset manager and parent of ETF giant iShares, has released its latest ETP Landscape Report, which details trends in the global ETP Industry. The report is summarized below.
Year-to-date ETP flows have surged ahead of 2013 and are on track for a new record.
Global exchange-traded product flows of $23.3bn in August ensured a strong finish to the summer for industry growth. The steady asset gathering has contrasted sharply with the volatility last summer due to the focus on when the Fed would begin to taper. As a result, year-to-date flows of $179.1bn have surged ahead of 2013 and are on track for a new record.
The impressive secular growth for the global ETP industry this year is diversified across exposures. Non-US developed equity and fixed income have made strong contributions throughout the year, while US equity and EM equity flows have improved dramatically after a slow Q1.
August ETP flows were tightly aligned with broader investment themes, particularly for equities. As seen in the table on the right, emerging market and Japan equity are the categories with the most attractive outlooks and inflows also trended higher for both during the month. EM equity funds gathered $4.7bn, with momentum building for funds with broad exposures as well as those with exposure to China. Japan equity ETPs accumulated $1.5bn, concentrated in Japan-listed funds. Japanese stocks remain the most attractively valued in the developed world on a relative basis. Ongoing record monetary stimulus is providing support for stocks and bolstering the economy by keeping the Yen from appreciating. Furthermore, corporate profitability has been better than expected given the recent sales tax increase.
Broad-based developed markets equity gathered $3.3bn and has been an ongoing investment theme, providing an attractive alternative to more fully valued US exposures. It includes EAFE funds, which brought in $0.6bn. It also incorporates global and international dividend funds. These categories accumulated $1.7bn and $0.3bn, respectively. Year-to-date, broad developed markets has been the steadiest of all equity categories with inflows of $26.7bn.
The case for Europe equity, a strong investment theme for the past 12 months, faded in late July and into August. Concerns over the strength of the region’s economic recovery, weaker than expected corporate earnings and the threat of deflation, along with the lack of additional measures from the ECB, have given investors pause. This led to August outflows of ($2.8bn) for pan-European equity, mostly in US-listed funds.
US equity inflows totalled a modest $1.9bn, led by broad US, healthcare and high dividend equity, but got off to a rocky start. US large cap outflows reached ($13.5bn) in the first week of the month. This came in the wake of a 4% drop in the S&P 500 during late July and early August due to deterioration of the situations in Iraq and the Ukraine. However, the S&P 500 subsequently rallied to new highs, passing 2,000 for the first time. US large cap ETPs also regained momentum, erasing nearly all of the earlier redemptions for the category.
Fixed income flows were strong in August despite the increased likelihood of US rates rising sooner than expected given stabilization of the economy. Much of the asset gathering came in longer-maturity Treasuries and investment grade corporate bonds. Notably, high yield recovered from a four week sell off through mid-August to bring in a modest $0.1bn.
Ursula Marchioni, Head of ETP Research EMEA at iShares, commented: “This August was the best August for ETP growth, and the industry is on track to break all previous asset gathering records in 2014. Globally, investors flocked to fixed income and emerging markets equity. In Europe we’ve seen this too. Europe-listed fixed income ETPs have been a big driving force behind flows with assets recently surpassing $100bn. Assets of the European ETP industry now stand at $470bn, and given we’ve already seen inflows of nearly $50bn this year, we could be on course to break the $500bn total asset level by the end of the year.”