Global ETP industry assets passed $4 trillion during May as net inflows of $45 billion were recorded, according to monthly flows analysis from BlackRock. The big gainers amongst ETF asset classes in May included broad Europe equity, EAFE equity and investment grade corporate debt.
ETP industry assets crossed $4tn in May 2017 after reaching $3tn just two years earlier.
Broad Europe equity ETFs led all categories with $9.3bn in net inflows during the month. The asset class began to see increasing investor demand immediately following the first round of the French presidential election in late April.
EAFE equity ETFs, which is comprised of developed equity ex-North America, also benefited from the European trend, doubling from the prior month to reach $9bn, the best month on record.
Elsewhere in the equity space, broad emerging market (EM) equity flows accelerated to $6bn, with single country funds, led by Brazil ETFs, adding $1bn. US equity ETFs experienced outflows of $3bn, the first in over a year, despite new highs in the S&P 500. US large-cap ETF inflows were modest at $800m, not enough to offset US small-cap ETF outflows of $5bn, which were the most in three years and followed a stretch of strong inflows since the US presidential election.
Source: BlackRock.
In fixed income, investment grade corporate debt ETFs set a new monthly record with inflows of $7bn. Year-to-date flows of $24bn were on track to eclipse the full year record of $33bn set last year. EM debt ETFs added another $2bn. The year-to-date total of $11bn is already equal to the full-year total from 2016.
In the smart beta space, May saw $850m of inflows into European-domiciled value factor ETFs, the second largest month for value exposure flows ever. Over the past 12 months, there has been a clear rotation out of the low volatility factor towards the value factor. The US election was seemingly the catalyst – since October there have been flows of $4bn into European-domiciled value ETFs.
The value factor has historically performed in periods of expansion. With political risks seemingly diminished and improving business fundamentals, particularly outside of the US, recent flows may indicate that investors believe history is likely to repeat itself.
In commodities, gold ETPs domiciled in Europe added $600m in May. However, there is a clear juxtaposition in views between the US and Europe as those listed in the US have seen outflows in three of the last five months.
The divergence between US and European investors views on gold is not in keeping with recent history. In the 24 months prior to December 2016, there were only five months where European and US domiciled flows moved in opposite directions. With investors concerned about crowding in consensus trades, gold ETPs showed that there are areas in the market that continue to divide opinion.
Source: BlackRock.
Investors looking for exposure to Europe equity, EAFE equity or investment grade corporate debt could try the iShares MSCI Europe UCITS ETF (LON: IMEU), the iShares MSCI EAFE ETF (NYSE Arca: EFA) or the iShares $ Corp Bond UCITS ETF (LON: LQDE).