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BlackRock’s global ETP flows for May 2024 reveal highest inflow month for rates and high yield

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BlackRock writes that May marked the highest inflow month of the year for both rates and high yield (HY) ETPs, with USD12.4 billion and USD5.4 billion of global inflows, respectively.

Equities rise: equity flows increased to USD69.9 billion in May, up from USD40.9 billion in April. US equities continued to gain the lion’s share, with USD55.7 billion added in May (vs. USD18.1billion in April). We saw continued buying in cyclical regions such as emerging markets (EM, USD3.9 billion in May vs. USD1.4 billion in April) and European equities (USD2.4 billion vs. USD3.1 billion in April).

Sector selectivity: sector flows had a distinctly cyclical tilt in May, with industrials (USD1.7 billion) and financials (USD514 million) leading the way. While tech recorded monthly outflows for the first time since June 2023, within factor ETPs, quality remained most popular, with a further USD2.2 billion added in May.

Rates and HY lead the way

Rates ETP flows have continued to build momentum since the start of the year, BlackRock writes. The USD25.1 billion added so far this quarter has already surpassed the USD23.9 billion added in Q1. Looking beneath the hood, we’ve seen a notable rotation back into short-term exposures, with the USD4.2 billion of inflows in May building on the USD3.1 billion added in April, after consecutive MoM outflows from November 2023 to March 2024 totalling -USD15.2 billion. In those five months, the story was very much one of long-duration buying – as investors sold out of the front end, they bought the long end (USD25 billion in total). Interest in long-duration exposures has remained steady, with a further USD4 billion added in May, in line with the monthly average we’ve seen YTD (USD4.5 billion).

Investors returned to credit in May, with USD5.1 billion added to investment grade (IG) and a further USD5.4 billion into HY ETPs, after a sharp pullback in buying in April (IG USD820 million, HY -USD2.2 billion). It’s worth noting that it’s rare for HY buying to exceed that of IG; this last occurred in April and November 2023. The majority of HY buying has gone into US exposures, but flows have been volatile compared to European exposures, which has seen steady month-on-month buying since November 2023.

Interest from afar

International interest in Japanese equities remained strong in May, with EMEA-listed products gaining USD921million of inflows, on top of the USD1.3 billion added in April. At the headline level, Japanese equities saw USD6.9 billion of outflows in May – the first month of selling since November 2023. Digging deeper, the outflows were driven by domestic selling from APAC-listed products, likely profit-taking from the exposure. International buying in European equities also continued, with a further USD293 million added into US-listed European equity ETPs in May, on top of the USD843 million of inflows in April.

International demand for European equities this year, based on flows into US and APAC-listed products (USD2.5 billion), has already surpassed the total set in 2023 (USD1.7 billion). However, European equities remain under-owned, in our view. The total of USD4.3 billion inflows from international investors since the start of 2023 still falls well short of recouping the USD10.7 billion of outflows seen in 2022 alone.

Cyclicality through sectors

Investors turned to sector ETPs to express cyclicality within portfolios in May, while tech dominance pared back, BlackRock writes. Buying in financials (USD514 million) and industrials (USD1.7 billion) stood out, yet the prospect of the start of further developed market central bank rate cuts has also seen a pickup in interest in bond

proxies like utilities (USD854 million), which registered their highest inflow month since September 2022. Within industrials, interest has largely skewed towards US exposures this year (USD2.2 billion). Green shoots have started to form for European industrials, with inflows in April (USD29 million) and May (USD72 million), but year-to-date net inflows remain muted at USD74 million, after net outflows in Q1.

After 10 consecutive months of buying in tech ETPs, May saw the first outflow month (-USD2.4 billion) since June 2023 (-USD4.4 billion). Nevertheless, the sector remains a high-conviction call for us, and recent outflows barely make a dent in the USD54.7 billion added in the past 10 months.

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