The global ETP industry grew by 2.7% (10% YTD) and reached USD1.58 trillion in Q2-11, primarily helped by strong inflows across all regions.
In USD terms, the Asia Pacific ETP market reached USD92 billion and was the best performing market adding 7.2% (9% YTD) in AUM growth, followed by the European ETP market with 4.1% (13% YTD) growth and USD349 billion in AUM (1.9% growth in EUR terms and EUR241 billion in AUM), then the US ETP market with a 2.0% (9% YTD) expansion and USD1.08 trillion in AUM, and finally, the Rest of the World with flat growth (9% YTD) and USD59 billion in AUM.
Most of the 2.7% growth in the global ETP industry during Q2-11 came from inflows (+3.0%), while contracting asset prices offset part of the inflows growth (-0.3%). Asset flows for the quarter were strong, totaling USD47 billion and they were slightly down for the same quarter last year (USD49.1 billion).
The US market accommodated 62.5% of all new flows, while Europe, Asia-Pac and the Rest of the World accounted for 20.9%, 14.5%, and 2.2%, respectively. ETP flows in Q2-11 were significantly more concentrated than Q2-10. Equity, fixed income, and commodity ETP flows breakdown was 72%, 26%, and -3% last quarter vs 43%, 30%, and 26% on Q2-10, respectively.
Long equity ETPs received USD33.2 billion in new flows during Q2-11 with good momentum in the beginning and end of the quarter and a somewhat slower/flat mid quarter period. Fixed income funds, on the other hand, received steady new contributions throughout the quarter adding up to USD10.5 billion by the end of this period. Meanwhile, commodity products experienced some inflows during April, but these reversed later on.
Equity ETP allocations favored EM products the most with USD11.9 billion in inflows during the quarter, followed by DM ex US, US-focused, and Global ETPs with USD9.9 billion, USD8.5 billion and USD2.9 billion, respectively.
In terms of sector rotations, investors engaged in a defensive trade by allocating USD4.7 billion of cash into defensive sectors such as Healthcare (+USD2.5 billion), Consumer Staples (+USD1.3 billion), Utilities (+USD662 million), and Telecom (+USD262 million); while taking USD3.1 billion of money out from global cyclical sectors such as Energy (-USD3.2 billion) and Materials (+USD50 million). In the meantime, domestic cyclical sectors (i.e. Financials, Technology, Consumer Discretionary, and Industrials) remained oscillating mostly between -USD1.0 billion and +USD1.0 billion throughout the quarter.
Underpinned by increasing uncertainty and a flight from risky assets, fixed income products experienced a very active quarter during Q2-11. However not all categories or credit buckets were equally favored. Sovereign and Corporates products received the largest inflows each with about USD3.8 billion; while Money Market ETPs experienced the largest outflows with USD2.0 billion.
In terms of quality, investment grade products captured most of the new flows during the quarter with USD6.3 billion in inflows, followed by mixed quality portfolios with USD3.8 billion. On the other hand, high yield ETPs were dumped by investors and ended the quarter relatively flat (+USD151 million) as the focus changed from risk to quality and safety.
Commodity products experienced USD2.0 billion of outflows during Q2-11. Most of the sectors experienced outflows with the exception of Industrial Metals and Livestock which experienced nominal inflows of USD116 million, and USD8 million, respectively. On the other hand, Energy products experienced the largest outflows of USD931 million.
At a sub sector level we find that gold products were the big exception within the commodity products. Gold ETPs received inflows for USD2.0 billion driven mostly on the basis of the safe haven and value protection argument. On the contrary, Silver, Broad Agriculture, Broad Commodities, and Crude Oil experienced the most significant outflows of USD2.4 billion, USD612 million, USD518 million, and USD449 million, respectively.
Provider competitive dynamics on a global level remained fairly stable among the top 5 global providers. Year to date, Blackrock (nu.1, 40.3%) and StateStreet (nu.2, 16.6%) have lost 0.9% and 0.6% of market share respectively, while the world’s number 3, Vanguard has gained 0.8% reaching 11.0%.
US market dynamics remain tilted towards the Tier 1 providers which recovered 0.1% of market share at the expense of smaller, Tier 3, providers. This is a sign that as large providers get larger and big financial institutions or asset managers enter the industry, the competitive landscape will become more and more difficult for smaller ETP shops which try to take their shots at the ETF industry.
In Europe, the top 5 providers lost 0.6% of market share (mostly) to medium sized providers. Again this quarter, UBS, Source and Amundi continued to gather healthy cash inflows (EUR1.0 billion, EUR862 million and EUR507 million respectively).
Tier 1 providers in Asia Pacific lost the largest market share among Tier 1 providers across regions, yielding 3.1% (mostly) to medium sized providers. This is a testament about the dynamics governing the market in the eastern world which still remains more open to new competitors.