Flows into global exchange-traded products in June accounted for the second best month this year as investors put their money into equities and gold amid signs that risk sentiment is returning.
Ursula Marchioni, Chief Strategist, iShares EMEA at BlackRock.
According to BlackRock’s latest Global ETP Landscape Report total inflows hit $24.5bn last month, which compared with April’s $11.1bn and May’s $10.7bn. While flows were largely mixed, with no clear pattern to show how investors were thinking, gold ETPs continued to be popular with $22bn invested in the first half of the year. The yellow metal benefited from the EU Referendum as investors poured $2.5bn into gold exposures following the vote, as uncertainty forced them to de-risk, pushing total June inflows to $5.4bn.
Ursula Marchioni, Chief Strategist, iShares EMEA at BlackRock, said in a statement: “June flows have been mixed, demonstrating an absence of consensus amongst investors. Flows looked to be very tactical with risk sentiment shifting on to off to back on from day to day, especially when it came to broad European exposures.
“The performer of the year still continues to be gold, with gold based ETPs accumulating $5.4bn in June, and $22bn for the year so far. Investors are seeing this as increasingly opportune given its negative correlation to global equities, and an attractive source of diversification.”
However, despite Brexit, June showed signs of risk sentiment returning with global flows into equities substantially overtaking fixed income, according to a note from the provider. This was despite global fixed income inflows being nearly three times as high as equities overall in the first half of the year. Cumulative global flows for fixed income hit $66.7bn compared to equities at $23.5bn.
According to the data, in the last week of June there was a divergence in flows for US-domiciled and European-domiciled ETPs with $8.3bn of equity outflows from US domiciled ETPs and European listed equity ETPs amassing $2.4bn in flows.
Marchioni added: “A rally in risk assets prompted by investors shifting out of cash in search of higher returns supported flows into developed market equities, with broad global exposures gathering $10.4bn for the month. Investors seem to be positioning for imminent and coordinated central bank stimulus, a stance which has been implied by the central bank speeches since the Brexit vote and will be supportive of equities in the near-term.”
The impact of Brexit on flows showed that investors didn’t appear to react immediately. While European equities were down $2.1bn on the month up until 23rd June 2016 outflows stabilised and inflows were seen going into broad European equity ETPs following the vote; the sector ended the month down $1.8bn. In the fixed income space preference for longer dated treasuries at the start of the month turned into short dated treasuries as the result of referendum limited the chance of a US rate hike this year.
Marchioni explains that within European exposures the UK is one of the only countries remaining in the green in terms of cumulative flows for the year (+$1.3bn). “Investors did not seem to be immediately reacting to Britain’s vote to leave the EU, having seen just $72m leave UK equities post announcement. However, there was a clear rotation out of UK mid-caps (FTSE 250) and into UK large caps (FTSE 100). With just 21% of revenues being derived from UK operations for FTSE 100 companies versus 58.6% of revenues from the domestic market for FTSE 250 companies, investors are clearly trending towards large caps given the greater exposure to internationally focused revenues amongst domestic uncertainty.”
In other areas low/minimum volatility equity ETP flows surpassed their 2015 figure of $11.1bn in first six months of 2016 with the category receiving $2.8bn in flows for June, contributing to the $17.2bn year-to-date flows.