BlackRock Global ETP Landscape and European Trends May 2018

Li Wei BlackRock iShares ETF etfs etp etps

Global ETP flows in May were bolstered by U.S. Equities…

Wei Li Head of Investment Strategy, ETF and Index Investments EMEA – ‎BlackRock

May industry flows of $35.1bn were bolstered by flows into  U.S. equities with $26.1bn – nearly three-fourths of the total industry flows – amid the backdrop of strong corporate earnings and corporate tax cuts

Global Fixed Income continued to see steady flows bringing in $6.3bn across Investment Grade Corporate with $2.4bn, U.S. Treasuries with 1.4bn and TIPS (Treasury Inflation-Protected Securities) with $1.2bn

Global Developed Markets Equities continued to see inflows for the fifth consecutive month with $8.0 in May, bolstering the year to date flows to $43.1bn

EMEA-listed ETP Flows May 2018

First net outflow month since September 2014 as $618m flows out, but commodities still lead the way

Key themes this month:

Gold star: Commodities inflows continue

Risk off: Second consecutive month of equity selling since May 2016

A better grade: First inflow month for investment grade in 2018

Gold star

Flows into commodity ETPs led the inflows in May once again, adding $1.2B over the course of the month. The flows entirely went to gold (+$1.28B), as broad commodity ETPs had outflows of $40m.

The flock to safe haven assets was evident with equity outflows continuing. Strong buying of gold comes amid political uncertainty in Europe and ongoing trade tensions surrounding the US. Last month we noted $1B of gold inflows in gold was the highest since August 2016. The continuation into May indicates that investors are hedging against the ongoing geopolitical uncertainty.

Inflows into gold ETPs in Q2 stand at $2.33B, the highest quarterly level since the US election (in Q3 2016 – when $3.64B was added). This comes after a risk on Q1, when $0.86B of assets were lost from gold ETPs

Risk off

EMEA-listed equity ETPs lost $1.5B in May, with European equity ETPs leading the outflows once again at -$3.7B. Emerging markets (EM) equities had outflows for the first time since January 2017, as $642m flowed out.

Political uncertainty in Italy and Spain has hampered investor confidence; a rollercoaster end to the month that resulted in an Italian government finally being sworn in and a new Prime Minister in Spain led investors to look elsewhere. Investors have moved away from equities in general and in Europe in particular where political uncertainty, mixed macro data and lower earnings growth relative to the US have weighed on market sentiment.

Money continues to be added to US equity ETPs, albeit by a reduced figure of $639m this month. This runs counter to the general flight to safe haven assets that we have seen in May, as demonstrated by the inflows to gold and broad outflows from equity ETPs. Investor conviction may have been boosted by US earnings growth of 24.6% over the Q1 earnings season.

An improving grade

Investment grade ETPs registered their first inflow month of 2018 in May, with $336m added over the course of the month. We have recently seen investors start to return to global investment grade ETPs, and last month’s inflow shows that EMEA investors are catching up with the global trend.

Money was also added into inflation linked ETPs, which gathered $424m. Rates had their first outflow month in three months as European political uncertainty led to selling out of European focused rates ETPs.

EMD continued to lose assets in May, with $408m out in the third consecutive month of outflows. The selling was entirely out of local currency EMD ETPs, which lost $782m, while hard currency ETPs had inflows of $328m. A stronger dollar in 2018 has led to continuous selling out of local currency ETPs from March onwards, totalling $1.24B.

Source: ETFWorld

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