Latest research from iShares by BlackRock on ETP flows in July 2023 reveals second highest inflow month this year led by US equities.
Commenting on the report, Laura Cooper, senior macro investment strategist for iShares EMEA at BlackRock says: “Positive investor sentiment carried through into July with global equity ETP buying reaching the second-highest inflow month this year, led by US equities. This also accompanied the second-highest inflow month on record into Indian equity ETPs, as investors build up strategic exposures to capture favourable long-term growth and demographic dynamics. Flows into fixed income built upon gains seen in June, with inflows spread across investment grade and high yield credit.”
Flows into global ETPs moderated slightly in July to USD88.1 billion, down from USD99.8 billion in June, largely due to a slight drop off in equity buying, BlackRock says.
Fixed income buying rises: equity flows fell from USD76.9 billion in June to USD59.7 billion in July, while fixed income buying rose slightly to USD30.9 billion and commodity flows remained in negative territory, with a further USD3.6 billion of selling.
BlackRock writes that precision exposures were at the fore in July, with a broad rise in sector ETP buying amid Q2 earnings season, and India ETP flows hitting their second-highest level on record.
US leads the way in equities
Despite the drop from June, July still represented the second-highest inflow month this year for equity ETPs, against a backdrop of reduced equity allocations so far in 2023. As with June, US equity flows drove most of the buying (USD38.6 billion), while emerging market (EM) equity flows stayed relatively stable (USD11.1 billion), and Japanese equity buying fell from USD7.8 billion to USD2.6 billion.
International investors have started to meaningfully sell European equity ETPs over the summer, BlackRock writes. The exposure saw a fourth consecutive month of outflows, but the pace of selling slowed MoM to -USD2.2 billion. US-listed European equities lost a further USD0.9 billion in July.
Sector positioning in European equities has also shown signs of shifting. Outflows from European financials continued in July (-USD0.3 billion), following the USD0.7 billion out in June. BlackRock writes that it has seen positioning come off in European tech (-USD0.2 billion) and healthcare (-USD0.1 billion), while European materials notched a second consecutive month of inflows, with USD0.1 billion added in July.
Credit on the cards
In fixed income, simultaneous inflows into investment grade (IG, USD5.1 billion) and high yield (HY, USD2.2 billion) ETPs continued for a second consecutive month in July, the first time this has happened since October-November 2022. In June, flows into IG were relatively equally split flows between listing regions, and this continued for EMEA and US-listed IG ETPs in July, with USD1.8 billion apiece.
For HY, the trend was similar, with USD0.8 billion into both EMEA and US-listed HY ETPs. US allocations were slightly down MoM, however, meaning that EMEA-listed ETPs accounted for a greater proportion of HY flows in July than in June.
An Indian summer?
The USD11.1 billion added to EM equity ETPs was the lowest inflow month in the past three for the exposure, and once again heavily tilted towards APAC-listed inflows, which accounted for USD6.5 billion in July. Allocations to US-listed EM equity ETPs hit their highest level since January, with USD3.3 billion added in July, tilted towards single country exposures (USD1.8 billion). This contrasted with the trend in EMEA-listed flows, where broad EM equity buying has far outpaced single country allocations.
Indian equity ETPs notched up a further USD1.5 billion of inflows in July, the second-highest monthly inflow of the year and second highest on record. In contrast to the record USD2.3 billion added in March 2023, the inflows in July came largely from international investors, with USD1.2 billion into US-listed Indian equity ETPs. Flows into EMEA-listed India ETPs have been positive for nine consecutive months, with a further USD0.2 billion added in July, taking YTD net inflows to USD0.7 billion.
On the bond front, BlackRock writes that flows into EM debt (EMD) ETPs followed the trend it saw in June, with buying relatively evenly split across listing regions for a second month in a row. Flows were led by EMEA-listed EMD ETPs (USD0.9 billion), culminating in a total USD2.0 billion into global EMD ETPs in July.
Precision picks up
Flows into sector ETPs broadly rose in July, partly driven by positioning around the Q2 earnings season. Tech led the way, with USD5.0 billion added. US tech exposures saw USD1.0 billion of inflows in July, bringing the year-to-date total to USD6.3 billion, out of the USD20.8 billion YTD into broad tech ETPs.
Flows increased across all cyclical sectors, with energy (USD1.2 billion), financials (USD2.4 billion), industrials (USD1.6 billion) and materials (USD1.6 billion) all posting an increase in monthly allocations. For energy, this marks the first monthly inflows since November 2022, when USD1.0 billion was added. Between November and June, USD12.2 billion has come out of energy sector ETPs globally.
Similarly, in factors, value posted a second consecutive month of inflows, with USD0.8 billion added in July. Simultaneously, quality factor ETPs were sold for the first month since September 2022, with USD0.5 billion out.
