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Cautious investors in April cause drop in global ETP inflows: BlackRock

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iShares by BlackRock reports that global ETP flows slowed over April with USD53.0 billion added to global ETPs in April, down from USD65.1 billion in March. The drop off month-on-month was down to lower buying of rates and commodity exposures.

Laura Cooper, Senior Investment Strategist for iShares EMEA, BlackRock says: “Investors turned cautious in April compared to the first quarter of the year. That said, there were pockets of risk-on sentiment throughout the month with emerging market equity allocations leading the way, accompanied by a continued rotation towards European equity ETPs by US investors. Fixed income buying became more varied, as investors increased their allocations to high yield and global investment grade credit. April also signalled renewed investor comfort in the banking sector, with a fourth month of inflows into financials ETPs, led by the US.”

Inflows into credit partly offset a drop in rates buying, with net flows into fixed income (FI) at USD25.2 billion (versus USD37.7 billion in March), while commodity flows were flat versus USD1.6 billion previously, the firm writes.

Equity flows rose slightly to USD26.5 billion versus USD26.1 billion in March, supported by inflows into emerging market (EM) and US equity exposures.

EM equity allocations held steady at USD7.0 billion – as in March, allocations to EM single exposures (USD4.9 billion) outpaced flows into broad EM equity, with APAC-listed ETPs once again leading the way. While flows into European equities plateaued in April – down from USD1.6 billion in March – this masked continued allocation to European equities by US investors (with three inflow months in the past four), BlackRock writes.

In contrast to the APAC trend noted above, the balance across US and EMEA-listed EM equity ETPs tilted towards broad allocations, with single-country flows flat. BlackRock writes: “So far this year, we’ve seen international investors favour broad allocations in EM in every month but January, when investors bought into Chinese equities.”

US-listed ETPs gathered USD0.8 billion in April, offset by -USD0.8 billion out of EMEA-listed funds. A return to US equity exposures (USD12.4 billion) – up from USD7.2 billion in March – helped offset flat flows into European and Japanese equity ETPs.

While the drop in rates flows to USD7.6 billion in April from a record USD34.9 billion in March was the main contributor to overall FI flow levels, the shortfall was offset by a return to credit. USD5.7 billion was added to global high yield (HY) in April – the highest inflow month since November 2022 – and USD3.4 billion into global investment grade (IG), up from USD0.4 billion in March. Within EMEA-listed flows, the rates drop off was less stark – flows fell to USD3.7 billion from USD5.1 billion previously, while the pickup in credit was almost entirely in IG (USD2.7 billion), again showing a preference for EUR IG, in line with the trend in 2023 to date, BlackRock writes.

April’s USD1.3 billion of inflows into EM debt represent the largest monthly allocation since January. Yet overall, the clear preference for EM in equity flows has yet to meaningfully carry over to EM debt so far this year.

Healthcare led sector flows for the first time since November 2022, with USD3.2 billion added to global healthcare ETPs in April. The tilt to quality was also evident in factor flows. Quality has been the most popular factor so far this year – this continued in April with USD3.2 billion of inflows, in contrast to outflows from value (-USD1.0 billion) and momentum (-USD0.6 billion). Minimum volatility (USD1.0 billion) registered its first inflow month in four.

Financials (USD1.3 billion) notched up a fourth month of inflows, albeit slightly down on the USD1.7 billion added in March. Breaking with the trend so far this year, financials inflows were led by US exposures (USD1.2 billion) with the largest monthly allocation since October, while European financials were marginally out for the month.

At the other end of the spectrum, investors continued to sell energy (-USD0.8 billion) for the fifth consecutive month, while tech flows (-USD1.0 billion) flipped to negative.

April saw sustainable buying normalise with combined inflows of USD2.9 billion across the US and Europe, after heightened volatility in March weighed on equity flows. March’s -USD3.7 billion of outflows from sustainable reflected broader outflows from equity amid a flight to safety into government bonds (where sustainable options are limited).

In Europe, flows rose to USD3.5 billion from USD1.9 billion in the previous month, with the lion’s share going into equity ETPs (USD2.5 billion). ESG screened products led the way (USD1.2 billion, up from USD383 million in March). Fixed income (USD1 billion) also rebounded from lower flows in March (USD392m). April’s return towards pre-March levels was supported by new flows into Paris-aligned benchmark FI strategies.

US-listed outflows slowed to -USD512 million, versus -USD5.6 billion previously. Equity exposures recorded -USD583 million of outflows, led by ESG best-in-class strategies. US-listed fixed income ETPs saw net buying of USD71 million, led by ESG optimised strategies.

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