BlackRock: Global ETP Landscape and European ETP-Trends for March 2018

Global ETP flows in March were fueled by flows in Japan Equities…

Patrick Mattar, from the capital markets team at iShares

Global ETP inflows of $17.7bn remain subdued, but were an improvement over the $6.8bn collected in February as investors consider rising U.S. interest rates, a rise in the market’s inflation expectations, and the potential for increased protectionism

Funds with exposure to some non-U.S. markets maintained momentum led by Japan with $13.4bn, EAFE funds with $5.1bn and Emerging Markets with $3.3bn, while European equities shed ($6.1bn)

Fixed income generated $3.9bn, with healthy inflows for categories such as U.S. Treasuries and Sovereign bonds, offset by outflows from investment grade corporate and high yield corporate bonds

Redemptions from U.S. equities reached ($7.0bn), but were more moderate than the outflows of ($21.3bn) from last month

Monthly net flow into EMEA-listed ETPs stutters but stays positive at $1.2B

Key themes this month:

Muted March

EMEA-listed ETPs added $1.2B in March, despite the largest outflow week since December 2014, when $2.0B of assets were sold between 26-30 March. Investors’ preference for equities has continued into 2018 – the last time that fixed income flows exceeded equity flows was in June 2017.

Market sentiment was jittery in March, with market volatility fuelled by trade and tech-related headlines. Flows into EMEA-listed ETPs were softer than record January levels (see Stunted spring growth) as investors may have been sitting on cash or making opposite allocations that netted off.

While March’s net inflows are the lowest monthly numbers since November 2016, certain areas remained popular. The majority of equity inflows went to the US (+$6B), potentially influenced by the fiscal easing announced earlier in the year. European equities’ popularity reversed in the middle of the month, as sentiment was likely dented by a slowdown in macro momentum and growing political uncertainty in Italy

A right GEM

EM equity registered its largest quarter of inflows ever, with +$4.6B added. This also set a record fifth straight quarter of inflows. A slowdown of buying in EM equities towards the end of Q1 did not hamper the record run, despite concerns over an increase in global trade risks.

Consistent flows into the region may be as a result of strengthening growth prospects, alongside a wellmanaged China slowdown and structural reform momentum coming from countries such as India.

EMD did not fare as well. March brought about the first month of outflows in 2018 (-$0.5B), as positive sentiment retreated following the $1.4B that was added in the first two months of the year. A record January for global ETP flows may have elevated EMD inflows, which slowed down towards the end of Q4 as investors may have been concerned about stretched valuations. This leaves net inflows for the year at $0.9B.

Bad grade

March marked the first month of negative fixed income flows since the US election in November 2016, with net outflows totalling $454m.

Investment grade was hit particularly hard, losing $1.5B of assets over the month – the largest monthly outflow from investment grade since records began. Investors may have been concerned about limited upside in credit due to stretched valuations.

Government bond exposures gathered over $2B for the second month running. January and February mark the second and third largest monthly flows into rates ETPs respectively. The majority of inflows went into short and intermediate term ETPs (+$1.5B) as investors appeared to take advantage of cheapened valuations.

Source: ETFWorld

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