ETP flows heat up in July

Ursula Marchioni |16-Aug-2016

$55.2 billion flowed into global Exchange-Traded Products (ETPs) in July, representing the biggest month of inflows this year.



The size and composition of global ETP flows were not necessarily expected given the uncertainty created by the Brexit vote. Our analysis suggests that rather than panic-selling or de-risking, investors may have been capitalising on what they believed were buying opportunities in July.

US equities: Home of the brave?

US equities seemed to particularly capture investors’ imagination. In a month where Bloomberg data show the S&P 500 touched record highs, US large cap-focused funds accounted for $21 billion of a total $32 billion inflow into US equity ETPs – the highest monthly inflow since December 2014.

EM equities: Long haul flight

Flows into emerging market (EM) equities also surprised: $8.2 billion flowed into EM equity ETPs. It seems possible that some investors are viewing emerging markets as relatively disconnected from the political anxiety in Europe – somewhat counterintuitive as investing in emerging countries generally comes with higher risks than investing in developed countries. Less surprisingly, it was a sixth consecutive month of net outflows from pan-European equity ETPs. German equity ETPs, however, bucked the broad trend, recording a $0.8 billion inflow by month end.

A number of investors have been buying ETPs that could potentially provide diversification benefits and possibly some protection should market sentiment reverse

Fixed income: Yield-hunting season

EM debt (EMD) also had a good month. The $3.9 billion that went into EMD ETPs in July is perhaps reflective of investors being motivated to look further afield for sources of income given how low developed market government bond yields are. Flows into other higher-yielding fixed income ETPs, such as investment grade ($4.9 billion) and high yield ($2.2 billion) corporate bond funds support the view that the hunt for yield continues to be a significant driver of investor behaviour. Collectively, EMD, high yield and investment grade ETPs accounted for almost 80% of global flows into fixed income ETPs in July.

Volatility: Checks and balances

July was not all ‘risk on’, however. A number of investors have been buying ETPs that could potentially provide diversification benefits and possibly some protection should market sentiment reverse. Gold ETPs drew in $3.2 billion, taking year-to-date flows to $25.1 billion – already higher than the record yearly inflow ($17 billion) set in 2009. Minimum volatility ETPs, meanwhile, attracted $1.4 billon.

August tends to be a relatively quiet month for markets. However, August 2015 was anything but, as China-inspired volatility rocked investor sentiment. At the time of writing, volatility is low – too low, in our view. ETP flows in July seem to suggest that investors may be hoping for the best while preparing for the worst. The flow picture at the end of August should tell us whether they were right.

Ursula Marchioni
Chief Strategist EMEA, iShares
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All flow data sourced from the July 2016 BlackRock Global ETP Landscape report. 

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. The opinions expressed are as of 11/08/2016 and may change as subsequent conditions vary.