Fixed income drives strong ETP buying in June

Jul 8th, 2020 | By | Category: Fixed Income

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Exchange-traded products recorded their highest monthly inflows this year in June with $71.5 billion added, primarily due to a surge of interest in fixed income exposures.

Fixed income drives strong ETP buying in June

BlackRock reports that both investment-grade credit and inflation-linked ETPs set new net inflow records for June.

According to BlackRock’s latest Global ETP Flows Report, fixed income ETPs gathered a record-breaking $46.7bn during June.

Investment-grade credit ETPs saw their highest inflow month ever with $21.6bn net inflows significantly outpacing the segment’s previous record of $13.3bn set in April.

Total net inflows into investment-grade credit ETPs for Q2 now stand at $47.1bn which is particularly remarkable as it follows a fairly flat Q1 where flows netted out at -$0.2bn.

Q2 flows into investment-grade credit ETPs beat the previous calendar quarter record, set in Q1 2019, by $22.7bn.

Delving deeper, June’s inflows overwhelmingly veered towards US-focused ETPs with buying in ETPs targeting eurozone issuers dropping off after a pick-up in previous months.

Demand for inflation-linked ETPs also picked up significantly in June with $4.4bn net inflows beating the previous record of $2.5bn set in November 2016, the month of the last US presidential election.

According to BlackRock, interest in inflation-hedging products has started to pick up since mid-April, following record outflows from the exposure in March (-$4.6bn), as investors take into account the potential inflationary pressures of stimulus deployed to counter the effects of the ongoing pandemic.

US-listed inflation-linked ETPs accounted for the bulk of buying activity, while EMEA-listed ETPs also picked up to $1.2bn.

Following a flat month in May, inflows into equity ETPs picked up strongly with $23bn added in June.

European equity ETPs returned with a bang at $3.7bn. There was significant buying of US-listed products which accounted for $3.5bn of the total. US investors in European equities doubled down on the exposure into the start of June with three consecutive weeks of inflows, while conviction in EMEA has been a little more mixed as flows only turned positive in the last two weeks of the month.

Emerging market equity ETPs continued their poor flow run with a further $4.9bn in net redemptions, although this is notably less than the $9.4bn exodus recorded during the previous month. Headline outflows mask tentative buying (+$0.8bn) of US-listed emerging market ETPs in the second half of the month.

Within emerging markets, investors bought broad market ETPs to the tune of $1.1bn, while single-country ETPs saw heavy selling of -$6.2bn, highlighting how investors are becoming more selective in their approach to the segment.

Turning to factor ETPs, flows into value strategies picked up to $1.6bn in June, the segment’s largest monthly inflow since November 2019. US-listed ETPs accounted for approximately two-thirds of these flows, while investors in EMEA-listed value ETPs bought in June for the first time this year.

Value ETPs started 2020 out of favour as investors expressed a preference for quality and minimum volatility strategies. Flows into the segment turned positive in April after the spike in market volatility.

In contrast, minimum volatility is now on a four-month outflow streak despite elevated market volatility over this period. The segment saw a further -$1.3bn out in June. Quality flows are flat on the month, following $1.1bn added in May.

Flows into commodity ETPs remained positive during June but dropped to their lowest level of the year at $4.7bn.

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