ETF flows reflect pullback in risk sentiment, finds BlackRock

Jun 9th, 2016 | By | Category: Fixed Income

Flows into global exchange-traded products slowed slightly in May to $10.7bn, just shy of the $11.1bn net inflows seen in April. The slowdown reflected the pullback in global risk sentiment, with fixed income exposures accounting for the majority of net inflows, according to the latest ETP landscape report from asset manager BlackRock.

ETPs attract $10.7bn net inflows during May, finds BlackRock

Ursula Marchioni, Chief Strategist, iShares EMEA at BlackRock.

Fixed income net inflows registered $9.7bn, pushing cumulative flows into the asset class this year to $61.8bn – the best year-to-date performance in the history of the product. Flows into the asset class were broad-based, from corporate bonds to emerging market debt to municipals. Leading the categories were investment grade corporate bonds with $2.8bn, and broad US debt with $1.8bn. The only redemptions were ($2.6bn) for high yield corporate bonds, which have still gathered $4.7bn year-to-date as investors hunt for sources of income.

Ursula Marchioni, Chief Strategist, iShares EMEA at BlackRock, said in a statement: “With government bond yields at record lows, the influx of fixed income flows are going into credit-based exposures in the hope of getting whatever yields are left to scrap. However, this flow rally could fizzle out once the European Central Bank hits its limit of corporate bond support and/or the Fed hikes aggressively.”

Equity ETPs saw outflows of $3.7bn as risk-off sentiment took hold at the start of the month, reversing the course of net inflows experienced over the past two months. Some equity categories were in favour with investors though, with global developed market exposures recording $5.2bn in net inflows for the month, while US equity exposures were more benign at $0.9bn. Emerging market equity generated outflows of $5.0bn after two strong months of positive inflows, highlighting renewed concern over China’s economic growth impacting both broad emerging market funds and single country funds with Asia exposure.

Through analysing the demand of equity ETPs in May, a clear trend towards minimum volatility funds, which netted $2.6bn, became apparent. With uncertainty over global growth impacting stock returns, investors have already allocated $14.4bn to minimum volatility funds year-to-date, more than the $11.6bn for all of last year. As a result, assets have more than doubled in just two years.

Commodity ETPs added $4.1bn in May on the back of strong demand for gold funds. Gold, which has outperformed many asset classes this year from a return perspective, saw inflows surge to $4.1bn. In addition to physical gold funds, gold miners also rallied, capturing $1.3bn.

“Gold-based ETPs accumulated $4.1bn in May, which was the second-highest monthly inflow in 2016,” said Marchioni. “Despite falling gold prices over the month, ETP investors bought a record amount of gold exposure signalling a flight to safety. The return to negative correlation between gold and equities this year, after years of QE-induced positive correlation, has meant that investors are turning to the precious metal as a portfolio diversifier.”

Commenting on what analysts may infer from the report as a whole, Marchioni concluded: “May flows appear to suggest that ETP investors are signalling no conviction, with some flows expressing risk-off, whilst others indicating risk-on. This is unsurprising given the current political landscape, which is contributing to market uncertainty.”

Total assets under management for the global ETP industry now stands at over $3.1tn as of the end of May 2016.

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