BlackRock’s February 2018 ETP landscape report finds that global ETPs slowed to USD6.8 billion in February amid a continued rise in US interest rates and a correction for the S&P 500.
The firm writes that funds with exposure to non-US equities maintained momentum despite the global selloff by bringing in USD24.4 billion, led by Japan with USD7.1 billion, broad EM with USD3.3 billion and EAFE (Europe, Australasia and Far East) with USD2.4 billion.
Fixed income generated USD3.4 billion, with healthy inflows for less risky categories such as US Treasuries, US broad market debt and TIPS offset by outflows for investment grade corporate, high yield corporate and EM debt.
Redemptions for US equities reached (USD23.3 billion), though this followed cumulative inflows of USD122.5 billion over the prior four months.
Patrick Mattar, from the iShares EMEA capital markets team at BlackRock, comments on the five key stories behind the European ETP flows in February 2018:
1. Risk on: Volatility returned to markets in February, but EMEA-listed equity ETPs continued gathering assets. February inflows lagged record inflows in January, but they were still almost twice as large as December 2017. European equities were the most popular equity exposure, at USD3.4 billion. Investor preference for European equities is not new though: inflows have beaten US equity inflows in all but two of the last six months.
2. Factoring in growth: Value has continued to lead factor ETP inflows in 2018, attracting USD0.6 billion of assets year-to-date. At the other end of the spectrum, minimum-volatility exposures lost USD0.25 billion in February – the biggest monthly outflow since February 2017. Value and momentum factors could benefit from the global economic expansion, which could explain investor preference for these factors vs. more defensive minimum-volatility exposures.
3. Sectors R US: Looking at US sectors, cyclicals including financials and technology have gathered the most inflows this year. Such allocations could be helped by US tax cuts and a bigger than expected fiscal spending package. Q1 2018 is on track to be the largest quarter ever for US tech, based on the size of the inflows that have gone in so far. January and February have been the second and third largest months for US tech flows since records began.
4. EMD still the key?: February was a risk-off month for fixed income flows. EMD inflows slowed down from January levels but remained positive at USD0.2 billion, while high yield had outflows of USD1.5 billion in February 2018, a record figure. Investors’ preference for EMD exposures over HY – also observed last year – could be explained by relatively lower volatility for a comparable level of yield. There could also be more structural adoption of EMD as an asset class, helped by improving fundamentals and credibility of EMD issuers.
5. Rate that: Inflows into government bond ETPs accelerated in February, gaining USD1.98 billion, potentially driven by a safe haven search amid weak equity sentiment. Investors could also be taking advantage of tactical opportunities in this space. Meanwhile gold, another exposure often used as a safe haven, had the largest month of selling since December 2016. Gold ETPs have had six consecutive weeks of outflows this year, the first time this has happened since December 2016.