Net inflows into ETPs globally slowed to $6.8 billion in February as investors shed products providing exposure to US equities to the tune of $23.0bn, according to the latest ETP Landscape report from BlackRock.
Investors ditch US equity ETPs in February amid market sell-off, finds BlackRock
Redemptions for US equity ETPs during the month marked a turnaround for the asset class which had achieved cumulative inflows of $122.5bn over the prior four months.
BlackRock notes the abandonment of US equity ETPs was likely precipitated by a continued rise in US interest rates as well as a correction for the S&P 500.
ETPs with exposure to non-US equities continued to attract investor demand, however, despite the global selloff, bringing in $24.4bn, led by Japan ETPs with $7.1bn, broad emerging market ETPs with $3.3bn, and EAFE (Europe, Australasia and Far East) with $2.4bn.
The asset management giant behind the iShares brand of ETFs listed several tailwinds which may help to continue driving flows into non-US equity ETPs, including valuations that are less stretched compared to US equities, improving global economic growth, and a weaker US dollar.
Fixed income ETPs generated net inflows of $3.4bn, led by healthy inflows for less risky categories such as US Treasuries ($4.0bn), US broad market debt ($2.4bn) and TIPS ($0.8bn). High-yield corporate and investment-grade corporate bond ETP outflows accelerated to $4.2bn and $2.6bn respectively. It was the fourth straight month of outflows for high yield and the second straight for investment grade.
Commodity ETPs experienced minor net outflows of $0.1bn with $0.9bn and $0.5bn pulled out of gold ETPs and crude oil ETPs respectively.
Focusing on ETPs listed in EMEA, February saw total net inflows of $7.7bn despite the market correction. Equity ETPs generated the highest inflows with $6.3bn, as investors appeared to buy the dip. Fixed income ETPs gathered $1.2bn, with flows particularly strong in the second half of the month as investors allocated to government bond exposures. Meanwhile commodity ETPs had outflows of $378 million, versus inflows of $799m in January.
Patrick Mattar, from the iShares EMEA capital markets team at BlackRock, commented, “Volatility returned to markets in February, but EMEA-listed equity ETPs continued gathering assets. February inflows lagged record inflows in January, but they were still almost twice as large as December 2017. European equities were the most popular equity exposure, at $3.4bn. Investor preference for European equities is not new though: inflows have beaten US equity inflows in all but two of the last six months.”
Looking at EMEA-listed ETPs offering exposure to US sectors, investors have been favouring cyclical sectors. Financial sector ETPs have gathered $888m year-to-date, while technology sector ETPs have attracted $510m over the same period, putting the category on track to smash the record for largest quarterly net inflows. Mattar notes that allocations to the financials and tech sectors could benefit from US tax cuts and a bigger than expected fiscal spending package.
February was a risk-off month for fixed income ETP flows within EMEA – emerging market debt (EMD) inflows slowed from January levels but remained positive at $0.2bn, while high yield had outflows of $1.5bn in February 2018, a record figure.
“Investors’ preference for EMD exposures over high yield – also observed last year – could be explained by relatively lower volatility for a comparable level of yield,” said Mattar. “There could also be more structural adoption of EMD as an asset class, helped by improving fundamentals and credibility of EMD issuers.”
Inflows into government bond ETPs accelerated in February, gaining $2.0bn, which Mattar ascribes to potentially being driven by a search for safe-haven assets amid weak equity sentiment or by investors taking advantage of tactical opportunities in this space.
Meanwhile, gold, another asset often used as a safe haven, had the largest month of selling since December 2016, with investors withdrawing a net $0.9bn from EMEA-listed gold ETPs. These ETPs have had six consecutive weeks of outflows this year, the first time this has happened since December 2016.