ETP FLOWS
February 2018 ETP Flows Commentary
Monthly net flow into EMEA-listed ETPs hits $7.7B ($USD), despite February's equity market correction.
Karim Chedid
Karim Chedid, CAIA
Investment Strategist
March 2018

Key themes this month

1. Risk on: equity exposures attract inflows despite market correction
2. Factoring in growth: strong global growth drives inflows into momentum and value
3. Sectors R US: US tech could be on track for the strongest quarter on record
4. EMD still the key?: EMD attracted inflows, contrasting with record monthly outflows from HY
5. Rate that: rates buying accelerated, while gold was out of favour

Capital at risk. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

Unless otherwise state all data is sourced from the BlackRock Global ETP Landscape at 28 February 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.

In February, EMEA-listed ETPs pulled back from January's record inflows, but still attracted $7.7B despite market correction.
Equity flows were positive (+$6.3B), as investors appeared to buy the dip. Meanwhile commodities had outflows of $378M, versus inflows of $799M in January.
Fixed income gathered $1.2B, particularly in the second half of the month, as investors allocated to government bond exposures.

dates with destiny
1. Risk on

  • Volatility returned to markets in February, but EMEA-listed equity ETPs continued gathering assets. February inflows lagged record inflows in January, but they were still almost twice as large as December 2017 flows.
  • European equities were the most popular equity exposure, at +$2.4B. Investor preference for European equities is not new though: European equity inflows have beaten US equity inflows in all but two of the last six months.
  • This persistent equity demand came alongside strong earnings growth across regions, fuelled by a synchronised global economic expansion.

scales
2. Factoring in growth

  • Value has continued to lead factor ETP inflows in 2018, attracting $0.6B of assets YTD. Value's share of the total factor flow has been rising every year since 2015, reaching 78% in 2017 and 130% so far in 2018. Inflows into momentum ETPs were positive too; in February, the exposure gathered $0.06B - the largest inflow since October 2017.
  • At the other end of the spectrum, minimum-volatility exposures lost $0.25B in February - the biggest monthly outflow since February 2017. Value and momentum factors could benefit from the global economic expansion. This could explain investor preference for these factors vs. more defensive minimum-volatility exposures.
  • Growth-focused thematic funds were also in demand. These lagged January inflows, but still gathered $850m of global assets in February, $480m of which came from EMEA.

Bank
3. Sectors R US

  • Looking at US sectors, cyclicals including financials and tech have gathered the most inflows YTD. Such allocation could be helped by US tax cuts and a bigger than expected fiscal spending package.
  • Since December 2017, when the US Tax Reform Bill was agreed, US financials have gathered $1.4B, $888M of which has been added YTD.
  • Q1 2018 is on track to be the largest quarter ever for US tech, based on the size of the inflows that have gone in so far. January and February have been the second and third largest months for US tech flows since records began.

EM
4. EMD still the key?

  • February was a risk-off month for fixed income flows. EMD inflows slowed down from January levels, while high yield had outflows of $1.5B in February 2018, a record figure. The majority of inflows went into rates (seeRate that below).
  • EMD fared better than HY, with net flows remaining positive at $0.2B. The exposure had its first outflow week of the year in February, but buying returned in the latter half of the month.
  • The February outflow from HY (-$1.5B) was the largest on record by some margin: the next largest outflow, in December 2017, was three times smaller at $0.5B. Investors' preference for EMD exposures over HY - also observed in 2017 EMEA ETP flows - could be explained by relatively lower volatility for a comparable level of yield. There could also be more structural adoption of EMD as an asset class, helped by improving fundamentals and credibility of EMD issuers.

Gold
5. Rate that

  • Inflows into rates ETPs accelerated in February potentially driven by a safe haven search amid weak equity sentiment. Investors could also be taking advantage of tactical opportunities in the rates space.
  • Rates ETPs gained $1.98B in February - the largest monthly inflow since August 2014. This contrasts with $0.42B of outflows in January.
  • Meanwhile gold, another exposure often used a safe haven, had the largest month of selling since December 2016 (February outflows from gold ETPs equalled $0.94B). Gold ETPs have had six consecutive weeks of outflows this year, the first time this has happened since December 2016.

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.