BlackRock’s January ETF Landscape report reveals that global ETPs kicked off 2017 with record January flows of USD61.2 billion, the best monthly flows since September 2008’s USD64.7 billion, and the second best on record.
The firm writes that US-led global reflationary trends – characterised by rising wages and inflation – fuelled flows to US and Japanese equity funds. Fixed income also saw durable flows despite rising rates. In Europe, local domiciled ETPs secured USD10.2 billion in new flows, making it the largest inflow month since August 2015.
Patrick Mattar, from the capital markets team at iShares, commented on the five key stories behind the European ETP flows in January. The first is that equities are on the up as the reversal continues. “For the fourth month in a row flows into European-domiciled equities funds surpassed fixed income, as investors respond to higher interest rates, reflation prospects and broadening of the global macroeconomic recovery. However, fixed income flows remained positive with clear trend towards EM debt amongst European investors.”
Secondly, Mattar notes that in developed equities, Europe is riding US coattails. “Investors have been buying equities in both Europe and the US reflecting a renewed appetite for risk. Funds with US exposure have seen consistent inflows since 2016 driven by the macro recovery, and now European flows are also benefiting from a better earnings picture and stronger macro data in the region.”
Mattar also notes that in terms of commodities, gold flows diverged by domicile. “Gold flows diverged by region with Europe investors buying but global investors selling in response to the rising rate regime in the US. This dynamic suggests European investors are currently more focused on portfolio diversification than those elsewhere.”
In emerging markets, European investors were buying debt, while global investors focussed on equity. “From the start of this year global flows have picked up in both fixed income and equity although this masks the true picture. In fact, European investors have been buying EM debt and selling EM equities while investors elsewhere were more focused on equities.
“Historically, EM assets have performed strongly in an environment where USD is weakening and this has tended to be an indicator of flows into EM ETFs. Despite the favourable environment the current dynamic would suggest that European investors are more risk averse than global peers at present.”
Lastly, Mattar writes that Japanese equity flows have been driven by the Bank of Japan. “The Bank of Japan has been buying Japan-listed ETFs since the start of 2013 when President Abe came to power, and this was once again the key driver behind January flows.
“European-domiciled funds attracted around USD100 million of net inflows. This is the fourth consecutive month of inflows following a nine-month period during which European investors withdrew USD7 billion from Japanese Equity ETPs.”