Last year set a high bar for global ETP flows (+$658B). The 2018 total is set to fall short, with $456B added globally so far, yet this is significantly above the 2011-2016 range.
1. Santa ClaUS returns: US equity flows lead the way for another year
2. The good, the bad and the ugly: fixed income flows diverge
3. Comeback kid: emerging market (EM) quity flows bounce back in H2
4. Baby, it’s gold outside: investors didn’t warm to broader commodities
5. Follow the smart (beta) money: volatility boosts … minimum volatility
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Unless otherwise stated all data is sourced from the BlackRock Global ETP Landscape at 6 December 2018. 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 financial instrument or product or to adopt any investment strategy.
1. Santa ClaUS returns
- Inflows into US equity ETPs have led global equity flows yet again in 2018,with $143B of inflows year-to-date, compared to $200B last year. Given that overall flows into global ETPs have reduced this year, relative proportions can provide more insight on investor sentiment – US equity flows have accounted for 44% of total equity flows in 2018, up from 41% in 2017.
- EMEA investors have been distinctly more positive on US equities this year,and have been net buyers of the exposure in all but seven weeks in 2018. Inflows into EMEA-listed US equity funds are up more than 1.5x on 2017, and currently stand at $23.8B. Among US-listed funds, flows have been larger and more erratic: $116B has been added YTD (down from $182B in 2017) with spikes throughout the year (see chart).
- The largest ever weekly outflow from US equities (-$27.5B) came in response to the February volatility episode. These outflows were entirely from US-listed ETPs. EMEA investors added to US equity ETPs in February and continued to do so during periods of volatility.
Cumulative flows into EMEA- and US-listed US equity ETPs, January 2018-December 2018
Souce: BlackRock and Markit, 6 December 2018.
2. Different strokes for diffrerent folks
- US Treasury ETPs have been the most popular fixed income asset in 2018, with flows increasing more than 2.4x to $45.3B, compared to $18.6B in 2017. Investors have overwhelmingly favoured the front end of the curve: short-term products account for $30.3B of the total $45.3B, while intermediate-term ETPs have been intermittently popular.
- Inflows into investment grade (IG) ETPs, on the other hand, have reduced from $52.3B in 2017 to $19.2B in 2018. Investors sold IG ETPs particularly heavily in February – when market volatility first picked up – and although inflows have been consistent throughout the rest of the year, volumes have been lower compared to 2017.
- High yield has been the ugly duckling of 2018. Outflows of $9.4B have completely erased 2017’s +$6.4B, and show no sign of letting up.
Flows into US treasury ETPs, split by duration January 2017-December 2018
3. Comeback kid
- EM equity flows have recovered from a mid-year setback to reach $57.2B YTD, marginally off 2017’s record $58.2B. Investors have kept faith in EM despite a challenging year: a packed election calendar coupled with idiosyncratic events and tightening financial conditions have left little room for joy.
- Flows into emerging market debt (EMD) ETPs improved in the second half of the year, with only one week of outflows from July onwards. Investors have however bought with less conviction in 2018: YTD inflows are at $9.7B compared to $17.5B in 2017.
- The dollar environment in 2018 has led investors towards hard currency EMD ETPs, which have been distinctly more popular across the whole year. Local currency was in favour in January, and has regained popularity into the end of the year as investors turned to the exposure for income generation.
No capitulation in EM
Weekly flows into EM equity ETPs, January 2018-December 2018
4. Baby, its gold outside
- Investors didn’t warm to commodities in 2018 – outflows for the year are at -$2.3B compared to inflows of $9.5B in 2017. June proved to be the turning point for the asset class – it marked the beginning of fourteen weeks of selling, from which flows have been unable to recover.
- Investors remain positive on gold with net inflows YTD – albeit at a reduced $1.6B (compared to $7.3B last year), and gold ETP flows have withstood a sixteen week selling streak in the middle of the year. Increased macro uncertainty into Q4 may have boosted its popularity.
- Crude oil ETPs have remained unpopular with investors, with outflows totalling over $2B for the second year in a row. Oil has had a bit of a turbulent year given supply and demand concerns, alongside technical positioning, but investors started to consistently allocate to crude oil from November onwards, for the first time since June 2017.
A golden recovery
Cumulative flows into gold ETPs, January 2018-December 2018
5. Follow the smart (beta) money
- Minimum volatility ETPs take the crown as the most popular smart beta ETP of 2018 (+$8.9B YTD), thanks to a late year surge in popularity, which was aided by elevated market volatility. It’s worth bearing in mind that investors still allocated $3.7B to minimum volatility in 2017, which turned out to be an unusually calm year in volatility terms.
- Quality has been the most consistently popular factor in 2018, with investors adding $3.8B compared to $0.9B in 2017. The factor has notched up inflows in every month bar February – and is the only factor to have done so.
- Up until September, momentum was actually leading the way, but inflows have reduced into the end of the year. Year-on-year, inflows into momentum ETPs are up from 2017’s $3.7B to $5.0B in 2018. Value has had a mixed year with flows netting out almost flat, compared to the $4.1B total flows added in 2017.
Cumulative flows into minimum volatility, momentum and quality factor ETPs, January 2018-December 2018
Past flows into EMEA-listed ETPs are not a guide to current or future flows and should not be the sole factor of consideration when selecting a product. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation to, offer or solicitation to buy or sell any financial instrument or product or to adopt any investment strategy. Investment in the products mentioned in this document may not be suitable for all investors. BlackRock has not considered the suitability of any product against your individual needs and risk tolerance.