Exchange-traded products listed globally kicked off 2017 with net inflows of $61.2bn, the best monthly flows since September 2008’s $64.7bn, and the second best on record, according to the latest BlackRock ETP Landscape report.
BlackRock reports that global ETP flows were $61.2bn in January, the best monthly flows since September 2008’s $64.7bn, and the second best on record.
Developed equities were the most popular asset class during the month, netting $42.3bn in net new inflows as US-led global reflationary trends – characterized by rising wages and inflation – fueled flows to US ($19.3bn) and Japanese ($10.7bn) equity funds.
Within January’s US equity ETP flows, small-caps and mid-caps performed relatively strongly, gathering $4.3bn and $4.1bn, respectively. According to BlackRock, rising optimism about tax reform and economic stimulus boosted interest in these firms, whose operations tend to be more domestically focused. Reflation has also been a boon to cyclical sectors including real estate with $1.5bn inflows, technology with $1.4bn and financials with $1.3bn.
European equities also saw positive net inflows, with $3.1bn on new money entering these ETPs.
Patrick Mattar, Head of Broker Dealer Sales at iShares, commented: “Investors have been buying equities in both Europe and the US reflecting a renewed appetite for risk. Funds with US exposure have seen consistent inflows since 2016 driven by the macro recovery, and now European flows are also benefiting from a better earnings picture and stronger macro data in the region.”
Tentative signs of inflation, a weaker yen and better corporate earnings estimates have contributed to better performance for Japanese equities, contributing to record monthly inflows of $10.7bn to Japanese equity ETPs. Ongoing purchasing support from the Bank of Japan, in place since the start of 2013 when Prime Minister Shinzo Abe came to power, was also a key driver behind January’s flows.
Fixed income also saw durable flows despite rising rates, gathering $16.6bn globally.
Investment grade corporate bond funds saw strong flows of $5.0bn in January as better economic growth aided credit spreads, while short-maturity funds (+$5.2bn) and Treasury Inflation Protected Securities ETPs (+$1.6bn) were notably in demand as investors sought less sensitive exposure to rate increases and protection against rising prices.
Investors also sought emerging markets (EM) exposure with global net inflows of $2.4bn to EM equities and $1.4bn to EM debt, although investor interest differed by region with European investors primarily seeking fixed income exposures and US investors favouring equity ETPs.
“Historically, EM assets have performed strongly in an environment where USD is weakening and this has tended to be an indicator of flows into EM ETFs,” said Mattar. “Despite the favourable environment the current dynamic would suggest that European investors are more risk averse than global peers at present.”
Commodity ETPs saw net outflows of $0.1bn with crude oil ETPs garnering $0.4bn in net new money while gold ETPs lost $0.3bn. Gold flows again diverged by domicile as European investors displayed more interest in these products.
Mattar said: “Gold flows diverged by region with Europe investors buying but global investors selling in response to the rising rate regime in the US. This dynamic suggests European investors are currently more focused on portfolio diversification than those elsewhere.”
Global ETP assets now stand at $3.632tn as of the end of January.