The BlackRock ETP Landscape report for March 2018 reveals that global ETP inflows of USD17.7 billion remained subdued but they were an improvement over the USD6.8 billion collected in February.
The firm writes that these inflows came as investors consider rising US interest rates, a rise in the market’s inflation expectations, and the potential for increased protectionism.
Funds with exposure to some non-US markets maintained momentum led by Japan with USD13.4 billion, Emerging Markets with USD3.3 billion, while European equities shed (USD6.1 billion).
Fixed income generated USD3.9 billion, with healthy inflows for categories such as US Treasuries and Sovereign bonds, offset by outflows from investment grade corporate and high yield corporate bonds. Redemptions from US equities reached (USD7.0 billion), but were more moderate than the outflows of (USD21.3 billion) from last month.
Patrick Mattar, from the iShares EMEA capital markets team at BlackRock, comments on the three key stories behind the European ETP flows in March 2018, saying EMEA-listed ETPs added USD1.2 billion in March, despite the largest outflow week since December 2014.
Market sentiment was jittery during the month, with market volatility fuelled by trade and tech-related headlines. “While March’s net inflows are the lowest monthly numbers since November 2016, certain areas remained popular. The majority of equity inflows went to the US (USD6 billion), potentially influenced by the fiscal easing announced earlier in the year. European equities’ popularity reversed in the middle of the month, as sentiment was likely dented by a slowdown in macro momentum and growing political uncertainty in Italy.”
Emerging Market (EM) equity ETPs registered their largest quarter of inflows ever, with +USD4.6 billion added, Mattar comments. “This also set a record fifth straight quarter of inflows. A slowdown of buying in EM equities towards the end of Q1 did not hamper the record run, despite concerns over an increase in global trade risks. This may be as a result of strengthening growth prospects, alongside a well-managed China slowdown and structural reform momentum coming from countries such as India.”
The EM debt sector did not fare as well, Mattar says. March brought about the first month of outflows in 2018 (-USD0.5 billion), as positive sentiment retreated following the USD1.4 billion that was added in the first two months of the year.
“March marked the first month of negative fixed income flows since the US election in November 2016, with net outflows totalling USD454 million. Investment grade was hit particularly hard, losing USD1.5 billion of assets over the month –the largest monthly outflow from investment grade since records began. Investors may have been concerned about limited upside in credit due to stretched valuations.
“Government bond exposures gathered over USD2 billion for the second month running. January and February mark the second and third largest monthly flows into rates ETPs respectively. The majority of inflows went into short and intermediate term ETPs (+USD1.5 billion) as investors appeared to take advantage of cheapened valuations.”