Investors favoured risk-on assets during September with US and Japanese equity exchange-traded products stealing the show, gathering $9.7bn and $9.3bn respectively, according to the latest ETP landscape report by BlackRock.
Ursula Marchioni, Chief Strategist, iShares EMEA at BlackRock.
Ursula Marchioni, Chief Strategist, iShares EMEA commented: “Despite the recent spike in volatility, particularly for FX and commodities, global ETP flows showed that risk-taking amongst investors remained through September. This was mostly attributable to the Federal Reserve holding rates, and to marginal changes from the Bank of Japan’s purchase programme.”
“US equities collected $9.7bn, of which $1.3bn went into dividend-weighted strategies amid improving economic data in the US,” continued Marchioni. “This is a continuation of one of the biggest trends seen throughout Q3 2016 when US equity ETP flows gathered $58.4bn, in line with Q4 2015 which was the strongest quarter on record with $58.7bn of net new assets. With US elections looming in Q4, we expect equity volatility to increase.”
The strong interest in Japanese equities was driven by the Bank of Japan’s purchase of approximately $7bn worth of Japanese equity ETPs but there was also notable buying from domestic investors.
Flows into emerging market equities were also net positive at $2.7bn, although this figure was drastically lower compared with $5.7bn last month.
“Emerging markets continues to attract investors, with year-to-date inflows at the highest since 2012,” noted Marchioni. “The emerging markets asset rally could have more room to go, as a tactical play. This is due to the gentle Fed rate hike path as well as structural improvements within emerging economies, coupled with relative calm in the oil and Chinese markets.”
The only exposure which did not seem to benefit from improved risk sentiment at a global level was European equities, which saw $2.5bn of outflows, bringing total net outflows for the year to $37.3bn. That being said, European investors were supportive of ETPs targeting European equities, indicating local investors may be beginning to be more bullish on their region’s prospects.
Marchioni said: “European investors started to put some money back into European equities. Given the ongoing concerns about the banking sector and upcoming political events in the region, it is too early to call whether this is a reversal of the 10 consecutive weeks of outflows recorded from this exposure since Brexit – or for the bigger trend of outflows from this exposure since the start of the year. Yet these sprouts are certainly worth watching.”
Fixed income flows also pointed to a risk-on market sentiment, with strong buying of both emerging market debt ($1.8bn) and high yield ETPs ($1.2bn). Safer fixed income ETP exposures such as US Treasuries and other sovereign bond ETPs recorded net outflows of $0.8bn and $0.6bn respectively. This year has now seen the fastest growth rate in global bond ETFs since 2012, with European and US markets tripling in size over the last six years.
Gold, whilst having a slow start to the month as a result of US investor selling, ended the month up $738m with the Federal Open Market Committee announcement to keep rates on hold.
As of the month’s end, assets in the global ETP industry amounted to $3.389tn, consisting of $2.577tn in equity ETPs, $612bn in fixed income ETPs and $199m in commodity-based ETPs. The US is the largest market for ETPs with $2.417tn in assets, followed by Europe with $568bn. The Asia-Pacific region has $312bn in ETP assets while Canada has $82bn.