ETFs/ETPs (hereafter ETFs) gathered $11.0 billion in net new assets globally during June, fuelled primarily by fixed income funds which saw $10.3bn in net inflows, according to the latest ETP Landscape report from BlackRock.
Year-to-date net inflows for fixed income ETFs globally amount to $54.2bn, as of the end of June 2018.
Fixed income ETF inflows for June were driven by US Treasury ($4.2bn) and investment grade corporate funds ($3.5bn). Inflows into corporate bond funds were focused in short maturity ($1.7bn) and blended maturity ($1.3bn) strategies.
The bumper month for fixed income brings year-to-date flows for ETFs linked to the asset class to $54.2bn.
US equity ETFs also showed significant demand in June, drawing in $7.5bn in net inflows, which BlackRock credits to strong company earnings and corporate tax cuts.
Small cap ETFs were particularly in demand, gathering 4.0bn.
Lower corporate taxes may provide a relatively larger benefit for small-cap stocks, which have tended to have higher effective tax rates than larger, multinational firms. That said, BlackRock warns that small caps could be vulnerable to any tax reform disappointment given the backdrop of diminished earnings expectations and high valuations.
European equity ETFs saw continued outflows of $4.7bn globally, having seen outflows in the $5bn to $6bn range for each of the last four months. According to BlackRock, this was primarily concentrated in European Monetary Union (EMU) funds which shed $3.5bn as moderation in domestic growth and a rise in political risks posed headwinds for earnings.
Commodity ETFs saw outflows of $2.8bn after a five-month streak of inflows. Gold ETFs accounted for most of the outflows, losing $2.3bn during the month.
EMEA-listed flows
Fixed income ETFs also led the way in Europe, the Middle East, and Africa (EMEA). ETFs tracking the asset class pulled in $1.2bn during the month, with $514m going into government bond ETFs in June following $419m of outflows in May.
Government bond ETFs have been the most popular fixed income exposure this year in Europe, gathering $5.3bn, almost entirely towards the end of Q1. Inflows into government bond ETFs were driven by buying in intermediate-term government bond ETFs (duration of 2-10 years).
High yield’s unpopularity continued in June as a further $130m flowed out. Year-to-date (June month end) net outflows currently stand at $1.8bn. April was the only month of inflows for high yield ETFs this year.
Wei Li, head of iShares EMEA investment strategy at BlackRock, commented, “The reverse in high yield’s fortune can be attributed to the rate rise environment in the US starting to provide more attractive income opportunities elsewhere in fixed income, such as dollar investment grade.”
Emerging market equity ETFs saw net outflows of $2.0bn in June. This follows the first outflow month of the year for the asset class in May and is the largest outflow figure since December 2014.
Negative sentiment on European equities has culminated in four consecutive months of outflows for European equity ETFs, the first time since early 2016. The asset class shed $1.1bn in net outflows during June.
Li said, “The last time that total equity inflows were this low there was a similar trend of investors selling both EM and European equity and turning to the US instead. Increasing trade tensions between the US and China have affected market sentiment and investors may be looking away from regions that are perceived to be more exposed to any trade escalation.”
Investors continued to allocate to US equity ETFs in June with $3.2bn in net inflows recorded for the month, in line with consistent flows into the country this year. According to Li, this trend “indicates a shift towards ‘quality’, i.e companies with earnings growth and proven cash generation, many of which are currently found in the US.”