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August saw global ETP flows moderate: BlackRock 

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Flows into global ETPs slowed to USD65.3 billion in August, down from USD90.1 billion in July, amid a drop in both equity and fixed income (FI) buying, according to BlackRock.

Equity flows fell to USD45.7 billion in August from USD60.5 billion in July, while FI buying waned to USD22.3 billion from USD32.1billion previously. Commodity flows stayed in negative territory (-USD3.2 billion).

Rates buying drove the majority of flows into fixed income ETPs in August, with USD18.5 billion added, notching up the exposure’s largest inflow month since March this year (USD35.2 billion).

Rates drove 83per cent of fixed income ETP buying in August, with USD18.5 billion added, up from the three-month average of 46 per cent from May to July. As usual, US exposures led the way (USD15.3 billion), BlackRock writes. Digging deeper into US rates flows, August saw a notable slowdown in duration buying: allocations shifted sharply in favour of short-term tenors, with USD7.6 billion added – nearly 4x July levels. Bund buying has also been in favour through the summer: August (USD0.8 billion) saw the highest inflows since March 2020, adding to July’s net buy of USD0.5 billion. Beyond developed markets (DM), emerging market (EM) debt ETPs registered USD0.3 billion of net outflows after four months of inflows from April to July (USD7.3 billion).

Elsewhere in fixed income, August saw strong selling pressure, with high yield credit (-USD1.6 billion) and inflation-linked bonds (-USD1.9 billion) in the red, and flat flows into investment grade (IG) credit. Yet these flows have merely dented strong credit buying this year, with USD30.5 billion added to IG exposures from January to July.

Defensive sectors lead the way

August sector flows showed a defensive tilt, led by tech and healthcare. Tech drove inflows over the summer, with USD17.2 billion added from May to July and a further USD12.2 billion in August. With a cumulative USD33 billion of inflows YTD, tech sector flows have already surpassed the USD26 billion added over 2022 – putting the sector on track to be the most popular for the fifth year running. Healthcare buying also returned in August (USD1.8 billion).

Cyclical flows continued to shift in August. Financials outflows (-USD3.3 billion) more than reversed July’s inflows (USD2.4 billion), suggesting it may be too soon to call a turn in sentiment.

Energy saw muted outflows (-USD0.1 billion), after July inflows (USD1.2 billion) signalled investors might be returning to the exposure following seven months of selling. In the factor space, value was well-bid, with USD1.3 billion of inflows in August on top of the cumulative USD1.5 billion added in June and July. In line with the trend seen in sectors, quality gathered USD2.6 billion of inflows after recording outflows in July (-USD0.4 billlion). Quality remains the most popular factor exposure this year, with USD23.5 billion added YTD – on track for the highest inflow year on record, BlackRock reports.

DM equity flows make way for EM

US equity buying drove regional flows across June (USD45.4 billlion, representing 60 per cent of regional flows) and July (USD39 billion, 65 per cent), but dropped sharply in August (USD11.1 billion, 24 per cent), giving way to strong EM equity buying (USD21.5 billion). August marked the third largest inflow month on record for EM equity ETPs, following December 2019 (USD23.1 billion) and January 2022 (USD21.7 billion). EM equity inflows have been remarkably persistent in 2023 so far, with USD88.7 billion added YTD and five out of the eight calendar months seeing more than USD10 billion of net inflows.

Flows into DM equities, in contrast, have been relatively choppy this year: Japanese equity flows edged higher in August (USD3.6 billion vs. USD2.6 billion in July), but momentum has abated since June (USD7.8 billion). US-listed Japanese equity ETPs gathered USD0.6 billion, while EMEA-listed exposures saw a trickle of nearly USD0.1 billion. European equities remained unloved, with a fifth consecutive month of outflows (-USD1.3 billion), adding to the USD7.4 billion of outflows from April to July; this has reversed c.60 per cent of the inflows seen in Q1.

Gold loses its lustre

Commodity ETPs recorded a third consecutive outflow month in August (-USD3.2 billion), after a total of USD8.8 billion of net outflows across June and July. Precious metals remained a key outflow driver in August, with net selling in gold (-USD2.5 billion) and silver ETPs (-USD0.4 billion). From June through August, gold ETPs shed USD8.7 billion. As a result, 2023 so far appears to be another weak year for gold buying, with net flows now at -USD7.6 billion YTD. Elsewhere, other commodity exposures also saw outflows, with USD1.8 billion exiting crude oil ETPs. Broad market commodity exposures were an August bright spot, with USD0.3 billion of inflows.

Laura Cooper, senior macro investment strategist for iShares EMEA at BlackRock, says: “Inflows to government bond ETPs, particularly those based on US treasuries, dominated fixed income ETP buying throughout August, with USD18.5 billion added. Looking beneath the US rates trend, the month witnessed a notable slowdown in duration buying as allocations shifted sharply in favour of short-term tenors – USD7.6 billion added, nearly 4x July levels – as the release of stronger macroeconomic data confirmed the ‘higher for longer’ narrative.”

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