Global ETP flows in June were fueled by Fixed Income..
Wei Li Head of Investment Strategy, ETF and Index Investments EMEA – BlackRock
Global ETPs gathered $11.0bn in June, fueled by Fixed Income funds with $10.3bn and U.S. Equites with $7.5bn while EM Equities shed ($4.8bn) and European Equities shed ($4.7bn)
Fixed Income led with $10.3bn bringing the year-to-date flows to $54.2bn, driven by inflows into U.S. Treasury and Investment Grade Corporate funds
U.S. Equities continued to see inflows of $7.5bn fueled by strong earnings and corporate tax cuts
European Equities have seen outflows in the $5 to $6bn range for each of the last 4 months as moderation in domestic growth and rise in political risks pose headwinds for earnings
Commodities saw outflows after a five month streak of inflows driven by Gold with ($2.3bn)
Fixed income leads the charge with $1.2B while equity inflows reduce to $585m. $553m of total inflows marks the lowest inflow month since December 2014.
Key themes this month:
EM equity continued its downward trend with $2B out in June. This follows its first outflow month of the year in May, and is the largest monthly outflow figure since December 2014, when $2.2B was lost.
The last time that total equity inflows were this low there was a similar trend of investors selling both EM and European equity and turning to the US instead. Negative sentiment on European equities has culminated in four consecutive months of outflows for the first time since early 2016 (-$1.1B in June).
Increasing trade tensions between the US and China have affected market sentiment. Investors may be looking away from regions that would be negatively impacted by any trade escalation.
Rates pulling their weight
$514m returned to rates ETPs in June following $419m out in May. Rates ETPs have been the most popular fixed income exposure this year, gathering $5.3B, almost entirely towards the end of Q1.
In June, inflows into rates were driven by buying in intermediate-term rates ETPs (duration of 2-10 years) compared to short-term rates ETPs being most popular in Q1. After that strong start to the year, short-term products had two months of outflows in Q2, with $372m out in June.
High yield’s unpopularity continued in June as a further $130m flowed out. YTD flows currently stand at -$1.8B. High yield has had only one month of inflows in 2018, in April when $90m was added. What’s driving the reverse in high yield’s fortunes? The rate rise environment in the US has started to provide more attractive income opportunities elsewhere in fixed income, such as $ investment grade, consequently turning investors away from high yield.
Nothing wrong with US
Investors continued to allocate to US equity in June (+$3.2B), in line with the consistent flows into the country this year. This indicates a shift towards ‘quality’, i.e. companies with earnings growth and proven cash generation, many of which are currently found in the US.
Flows from EMEA investors into US equity have been consistently strong, while domestic flows have been more erratic. Money has been going into US equity since June 2017, with increased market volatility having little downside effect.
In Q2, the US was the only major region to register equity inflows (+$5.8B). See the US versus EU chart opposite. A total of $12.5B flowed out of Japanese, EM and European equities