Dodd Kittsley, Global Head of ETP Research at BlackRock.
BlackRock, the world’s largest asset manager and parent of ETF giant iShares, has released its latest ETP Landscape Report, which details trends in the global ETP Industry. The report is summarized below. All flows are global and all data is through March 31, 2014.
Global ETP inflows finished at $12.9bn for March after moderating late in the month and a number of asset class categories appeared to experience a change in momentum. The industry continues to serve as a timely barometer of the global investment landscape, and this year market sentiment has been hard to pin down given mixed signals on economic growth and valuation concerns following impressive gains for equities in 2013.
US equity ETP flows reached $15.8bn in March but were essentially unchanged after the first week. They moved lower after Janet Yellen’s comments on March 19th suggesting an accelerated time frame for raising interest rates relative to what had been anticipated by the market. The March inflows were the highest monthly total so far this year, but were lower than the $21.4bn surge during the final three weeks of February.
The S&P 500 was range-bound after hitting highs in early March. Recent economic reports have been steady enough to buoy the index, but not to push it higher. The most recent readings indicated consumer confidence reached a six-year high in March at 82.3, Q4 2013 GDP was revised upward to an annual rate of 2.6%, and both personal income and consumption rose 0.3% in February.
Absent a catalyst, investors began to shy away from more expensive areas of the market in late March. For example, while US sector ETPs overall brought in $3.0bn to push year-to-date flows to $10.1bn (on pace with last year), US health care ETPs shed ($1.2bn) after March 20th and were flat for the month after gathering $4.0bn through February. A move toward value may bode well for financial ETPs, which accumulated $1.6bn during March, as well as US large cap equity funds, which gathered $5.5bn for the month and remain cheaper than small cap funds.
Outflows for emerging markets equity ETPs moderated to ($1.8bn) as selling pressure eased. Broad EM funds only had redemptions of ($0.3bn) in March after rebounding during the last week of the month on a combination of short covering and signs of new long positions. Single country EM fund outflows reached ($1.5bn). However, much of this came from funds with exposure to China, as March’s flash PMI indicated contraction for the third month in a row and fell to an eight-month low of 48.1. The last week of March actually brought inflows as investors anticipated the Chinese government may take steps to stimulate the economy. Excluding China, single country EM equity ETPs flows were flat but did rally $1.3bn from mid-month driven by Russia, South Korea and Mexico.
Meanwhile, two categories that generated 60% of the $110bn in non-US developed markets equity ETP flows during 2013 saw their first monthly redemptions after a long string of inflows. Japanese equity ETPs experienced outflows of ($0.7bn) in March – the first in two years – in anticipation of economic contraction in Q2 2014 due in part to April’s planned sales tax increase from 5% to 8%. The March outflows caused year-to-date asset gathering to fall behind last year’s pace. Pan European equity ETPs also turned to outflows of ($0.9bn). The slow pace of the eurozone’s economic recovery, downward revisions to 2014 corporate earnings estimates and geopolitical concerns surrounding Russia all weighed on flows. In addition, lingering deflationary pressure remains, with the most recent 0.5% annualized inflation reading for March leaving the door open for a possible ECB interest rate cut in the months ahead.
After February’s record inflows, fixed income ETPs swung back to outflows in March due to US Treasuries. The Fed’s comments on the timing of interest rate increases left intermediate-term bonds vulnerable. The greatest March inflows were in broad/aggregate, investment grade and high yield corporate bond ETPs, with each category bringing in over $1bn.
Gold ETPs have also experienced a momentum shift with interest rates holding steady and the price of gold up 7% this year. They gathered $0.6bn in March – the second positive month in a row. However, additional asset gathering is unlikely in an environment where the dollar strengthens and real interest rates rise. The Fed’s latest guidance on interest rates made this scenario more probable and gold fell 7% in late March.