The pace of net inflows into EMEA ETFs jumped to USD14 billion in March, bringing total net inflows for Q1 to a robust USD42.6 billion, according to Invesco’s European Demand Monitor.
The Q1 2023 net inflows not only marked an acceleration versus Q4 2022, when ETFs attracted USD27.2 billion in NNA, but were almost half of the USD87 billion NNA total raised in all last year.
Equities led net inflows for the quarter with USD23.3 billion accounting for 55 per cent of net new assets (NNA). However, this is lower than their current market share of 68 per cent, possibly due to a combination of market strength, increasing concerns about the potential for a recession, and the problems in the banking sector that were seen in March, the firm writes.
Fixed income attracted USD16.2 billion NNA, representing 38 per cent of net inflows and punching above its market share of 24 per cent. Meanwhile, commodities saw NNA of USD2.7 billion over the quarter accounting for 6 per cent of net inflows, slightly below their market share of 8 per cent.
A prosperous Q1 for equities
Having experienced particularly strong demand in January, followed by healthy inflows in February and March, equity ETFs have had a prosperous first quarter with net inflows of USD23.3 billion, Invesco writes. Broad emerging market equities have seen the strongest demand over the quarter with USD8.6 billion NNA accounting for 38 per cent of total net equity inflows. With USD8.1 billion NNA, which represents 31 per cent market share, global equities were the next strongest category in Q1, followed by broad Europe equities, which took in USD4.3bn (19 per cent).
Fantastic fixed income
Investment grade credit was the strongest fixed income category for the quarter with USD7.7 billion accounting for 49 per cent of fixed income NNA. With USD5.8 billion NNA and representing 37 per cent of net fixed income inflows in Q1, government bond ETFs came in second position while aggregate bond ETFs saw steady demand over the quarter, taking in USD1.8 billion (12 per cent).
In Q1 2023 the USD11.2 billion of net inflows into ESG products, accounting for 26 per cent of NNA, is a much slower pace than seen in 2022, when ESG accounted for 61 per cent of NNA. However, it still punched above its market weight of 19 per cent.
Outlook for Q2 2023
“March saw a change of tone in financial markets as the focus switched from monetary policy and the impact of inflation to more systemic concerns about the potential for a banking crisis,” says Matthew Tagliani, Head of ETF Product and Sales Strategy at Invesco. “While authorities’ rapid response seems to have prevented contagion, it has driven a change in sentiment towards risk assets and the outlook for interest rates, a shift which may have important implications for asset allocation in coming months.
“In equities, the unsteady economic outlook is likely to maintain investor focus on large, liquid core exposures,” continues Tagliani. “However, the end of the zero-COVID policy has rekindled interest in Chinese equities, which saw strong inflows last year and early in Q1, as well as emerging market exposures more generally.
“In fixed income, the risk-off sentiment created by recent events in the banking sector has driven a rotation towards government debt which, in addition to its perceived safe-haven nature, could also benefit from less hawkish central banks. We see a similar dynamic in gold, which is not only seen as a risk-off asset, but also as potential to hedge against inflation and a weaker US Dollar, and think this may drive further gold inflows in coming months.”