5th August 2014
Global ETP flows reached $32.0bn in July with non-US equities bringing in $13.5bn according to the BlackRock ETP Landscape report. US equities gathered $13.5bn, driven almost singlehandedly by US large cap flows. Outside the US, emerging markets equity and Japanese equity also saw noteworthy ETP flows says the report.
Emerging markets equity
EM equity flows totalled $6.3bn and sentiment, which turned more constructive in March, further benefitted from data on China’s economic growth. Chinese GDP grew 2% in Q2, ahead of estimates and faster than in Q1.3 July’s flash PMI reading also beat expectations, rising to 52.4 Both of these results indicate that the government’s stimulus efforts are having an impact. This helped lift Chinese equity ETPs as well as broad EM equity funds which gathered $2.0bn and $4.3bn, respectively.
Japanese equity markets extended their recent rally. Even absent recent evidence of improving economic growth, investors have been drawn back to Japan given attractive valuations relative to the US and Europe. There is also a belief that the Bank of Japan’s aggressive stimulus agenda will begin to have a greater impact. ETP flows have again begun to rise, reaching $1.5bn in July after stalling in the prior two months.
European equity has been an ongoing investment theme accompanied by strong ETP asset gathering of over $50bn in the past 12 months. However, flows were negligible in July, with inflows from Europe-listed ETPs offset by redemptions for US-listed funds. Despite this, valuations are still attractive on a relative basis and the ECB remains committed to boosting economic growth via more accommodative policies.
Broad developed equity
Broad developed markets funds also remain popular . Inflows were $3.9bn and year-to-date trail only US equity among developed markets exposures.
ETPs with US large cap equity exposure led all categories globally with $13.9bn even though valuations in the US are less favorable than elsewhere in the developed world. Notably, flows were mixed for cyclical sectors with the most upside as the economy improves such as tech, energy and financials. Technology flows in July totaled $1.0bn. Energy, which has had strong flows year-to-date, was flat, while financials experienced outflows of ($0.7bn). Additionally, industrials and consumer non-cyclicals suffered material redemptions.
The most prominent investment trend to show signs of fading in July was high yield corporate debt. Redemptions for the category totaled ($3.3bn), primarily in the second half of the month. Investors appear to have begun selling in anticipation of higher interest rates next year even though the rate environment remains benign for now. Inflation has not risen materially and high yield debt is a still a viable option compared to other areas within fixed income. Outside of high yield, fixed income ETP flows were a healthy $6.0bn. The key drivers were broad US debt, followed by European government and corporate bonds.
BlackRock has also listed the ETPs with the largest inflows and outflows below.