BlackRock reports that asset allocation conviction returned to global ETPs in October, with USD111.5 billion of inflows into global ETPs – triple the amount added in September, and the first time since March that monthly ETP flows have surpassed USD100 billion.
The firm writes that equities and fixed income were in favour: equity flows increased from USD31.6 billion to USD79.0 billion in October, while fixed income allocations increased to USD34.2 billion from USD13.0 billion in September.
Commodities selling persisted, the firm says with commodity ETPs recording a further USD4.4 billion of outflows in October – a sixth consecutive month of selling.
Emerging market (EM) equity ETPs notched up a sixteenth consecutive month of inflows, with USD7.3 billion added in October, BlackRock reports. While the majority went into APAC listed ETPs (USD5.1 billion), investors also allocated to EMEA and US-listed ETPs (USD1.8 billion), with flows going into both listing regions for the first time since June.
EM equity ETPs have gained USD81.1 billion of inflows globally YTD, closely tracking the USD90.6 billion added in 2021, which was a record year for EM equity flows. Under the surface, EMEA-listed flows are also on track to match 2021’s figure, with USD11.7 billion YTD, vs. USD12.3 billion in 2021.
At a more granular level, EMEA-listed flows showed a pickup in buying of Korea (USD0.4 billion) – the largest allocation on record for EMEA-listed Korean equity ETPs, albeit offset by selling out of other listing regions to leave global Korean equity flows flat on the month, BlackRock writes. Investors also returned to Brazil in the largest inflow month since June (USD0.8 billion), despite the election at the end of the month adding an element of political uncertainty into Brazilian assets.
After sector flows dropped off in September, October saw a significant pickup, in line with the broad rise in equity flows, the firm says. Tech ETP buying rebounded to the highest level since March (USD6.1 billion), while financials notched up a second inflow month in three, with USD1.6 billion added. Healthcare remained popular (USD1.9 billion), while materials and utilities saw a reversal of fortunes: materials notched up a first inflow month since April (USD0.4 billion), while utilities turned negative, with USD1.3 billion out.
BlackRock writes that energy has had a rollercoaster 2022: inflows across January to April were followed by five months of outflows, which finally showed signs of reversing with USD1.6 billion added in October. This takes YTD net global flows into energy ETPs to USD2.2 billion, compared to USD23.4 billion across the whole of 2021.
Flows into fixed income ETPs surged to USD34.2 billion in October – a 2.6x MoM increase vs. September (USD13 billion), and the second-highest inflow month in 2022, closely behind May’s USD35 billion of inflows. Rates flows slowed on a relative and absolute basis, driving just over 50 per cent of fixed income flows (vs. 78 per cent in September), with the headline buoyed instead by a pickup in credit flows.
With spreads at historic wides, relatively attractive yields, in our view, and market consensus that the impending policy-induced US recession is likely to be short and shallow, conviction in high yield (HY) credit accelerated. October saw USD7.8B added to HY ETPs – the highest inflow month since April 2020 (USD8.5 billion). Buying overwhelmingly favoured US HY exposures, BlackRock reports.
After outflows for most of the year totalling -USD11.8 billion – on track to be the highest outflow year for the asset class – could these green shoots signal the start of a turnaround, BlackRock asks.
“Considering the volatility of credit flows YTD, it may be too early to call a decisive trend, in our view, but it’s certainly worth monitoring. Duration is also making a comeback in the rates space. After a record-breaking month for flows into front-end exposures in September (USD19.2 billion), buying of long-term exposures surged to USD6.7 billion in October – on track to be the third-highest inflow month on record,” the firm writes.
Sustainable ETP flows across Europe and the US in totalled USD1.5 billion in October – the lowest level since May this year. While European-listed ETPs saw USD3.5 billion of inflows for the month, the total across the two regions was brought down by the outflows from US-listed sustainable ETPs (-USD2.0 billion). Almost all of these outflows came from ESG optimised equity strategies, led by US market exposures. The only strategy that saw inflows among US-listed products in October was climate exclusive equity, with a net buy of USD82 million, BlackRock writes.
The European market, on the other hand, saw notable inflows into ESG optimised equity strategies, totalling USD955 million. The majority of this went into European market exposures, while the same strategy saw outflows from US equity exposures. With USD1.2 billion of inflows, ESG best in-class strategies saw the largest buying in October. The majority of this went into EUR corporate bond exposures. ESG screened strategies also registered inflows (USD621 million), albeit down from the levels seen in previous months.