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Global ETP flows rebounded strongly in July, says BlackRock

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Global exchange-traded product flows rebounded strongly to USD44.1bn in July following June outflows of USD5.2bn, according to BlackRock’s ETP Overview for the month.

2013 year-to-date flows of USD143.3bn have vaulted back ahead of the record pace of USD128.3bn set in 2012, after dipping below record territory last month.
 
The shift in market sentiment was once again influenced by comments from Ben Bernanke on 10 July to qualify his previous comments made on 22 May and 19 June about the pace of bond purchases that had roiled markets. The S&P 500 reached a fresh all-time high of 1695.5 in July and closed out the month at 1685.7.2
 
The “pullback and redeploy” theme benefitted US equities and to a lesser extent, fixed income, but did not extend to gold or emerging markets equities.
 
July equity flows scaled to a new 2013 monthly high of USD39.3bn. Investors gravitated to US equities with accelerated flows of USD31.6bn or nearly 72 per cent of all July flows while the category accounts for 41 per cent of ETP assets. US large, mid, and small cap exposures drew in close to USD24.0bn combined.
 
US Equities have driven 69 per cent of all equity flows year-to-date with USD102.6bn.
 
Flows into US Sector funds swelled to USD6.2bn, the highest monthly total since 2008. Investors favoured more economically sensitive sectors including financials with USD2.3bn, technology with USD1.2bn, and energy with USD0.6bn.
 
Investors embraced Pan-European equities, adding USD2.8bn in July, the highest total since December’s USD3.0bn. This is consistent with positive economic indicators for Europe’s largest economy. The German manufacturing PMI index unexpectedly expanded to 50.3 in July from 48.6 in June. A gauge of German services also rose to 52.5 from 50.4 last month, indicating growth accelerated.
 
Japanese equity ETPs collected another USD2.0bn in July, continuing to break year-to-date flows records with USD28.0bn. These results were bolstered by the Bank of Japan’s ETP purchases of USD0.8bn during the month (totalling USD5.5bn year-to-date). Japanese elections gave Abe control of both chambers of parliament and he vowed to continue with “Abenomics”, a hallmark of which is accommodative monetary policy.
 
Fixed Income flows improved to USD6.4bn in July following outflows of USD8.4bn in June. Investors displayed some risk appetite, adding USD2.6bn to high yield, the largest amount since February 2012 on the back of June redemptions of USD2.2bn. However, about half of July’s investments were made in short maturity funds which are less sensitive to interest rate movements.
 
Safe-haven US Treasuries also raked in USD3.0bn for the best showing since May 2012, mainly driven by intermediate maturity exposures. The 10-year US Treasury rate ended July at 2.58 per cent and was relatively stable for most of the month.
 
Flows into fixed income ETPs remained positive every month this year except for June.
 
The bulk of year-to-date flows went into short maturity including floating rate funds as investors have positioned for rising interest rates. These funds attracted another USD3.5bn in July, bringing the year-to-date total to USD26.5bn.
 
Broad maturities suffered the largest year-to-date outflows of any maturity category with USD12.7bn.
 
Gold outflows continued in July reaching USD2.6bn after June redemptions of USD4.3bn, building on an exodus that started in January. Continued modest inflation readings have lessened gold’s appeal as an inflation hedge.
 
Money trickled back into emerging markets equities with USD0.5bn in July following outflows of USD4.3bn in June.
 
Broad emerging markets equity funds drew in USD1.0bn, reversing an outflows trend that had started in March of this year, perhaps reflecting that investors believe the category could be oversold.
 
Investors withdrew USD1.1bn from China funds as markets digested lower GDP growth readings of 7.5 per cent in Q2 vs. 7.7 per cent in Q1, and a weaker PMI reading for June.
 
The S&P 500 index year-to-date price return was 18.2 per cent vs. the MSCI EM Equity year-to-date return of -10.2 per cent.
 
Outflows are rare in the growing ETP industry. Since July 2010, there were only three months with outflows: August 2010, November 2011 and June of this year, all driven by negative market sentiment. In each instance, inflows resumed the following month. 

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