November 2017 ETP flows commentary
Monthly net flow into EMEA-listed ETPs picks up to $10.2B ($USD)
Rob Powell
Rob Powell, CFA
Equity Product Strategist, iShares Investment Strategy & Insights
December 2017

Key themes this month

1. ‘Tis the season to be diversified: Q4 flows pattern continues.

2. Ding dong Europe on a high: currency supports US interest in European equity ETPs.

3. Fixed income all ye faithful: investment grade fights back.

4. Rocking around the EMD: bump in the road for hard currency investors.

5. Baby it’s gold outside: the yellow metal’s best month since February.

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 30 November 2017. 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.

EMEA-listed ETPs gathered $10.2B in November, the third largest monthly inflow of the year. This was up from the $7.5B gained in October. YTD inflows now stand at $91B – already more than $10B higher than the previous full-year record set in 2015.
Equities were the most popular asset class yet again, taking $6.7B of the inflows. Fixed income ETPs added $3.0B, their largest inflow month since June, and their third largest inflow month of the year.
Meanwhile, EMEA-listed commodity funds had their second consecutive month of inflows, adding $408m.

1. ‘Tis the season to be diversified

  • Continuing a trend highlighted in October, November was another large inflow month for EMEA-listed broad developed equity ETPs.
  • This means the dynamic we’ve seen in four of the last five years – more inflows in Q4 than any other quarter – looks set to continue.
  •  It appears that investors are moving portfolios closer to benchmark weights using broad developed ETFs. See the Back to benchmark chart below.
  • A theme that has endured throughout 2017 is investors in US listed ETPs allocating to broad developed equities. In 2017 so far, these US-listed funds have added a staggering $91B.

2. Ding dong Europe on a high

  • November was another positive month for EMEA-listed European equity ETPs. They have now had 15 consecutive months of inflows – continuing their longest run on record.
  •  For the first time since July, US-listed European equity funds also had inflows, adding $716m.
  • This inflow to US-listed products coincides with a rally in the EUR/USD cross rate. This mimics a trend seen throughout the year: as the euro strengthens against the dollar, US investors look to Europe. See the Losing interest chart opposite. Flows into US domiciled European equity ETPs have broadly moved sideways during periods of euro weakness and have grown when the euro has strengthened.

3. Fixed income all ye faithful

  • One of the dominant themes in fixed income this year has been flows into EMD ETPs, especially in Europe where $8B (just under a quarter of the total fixed income inflows) has been added. See Rocking around the EMD below for more information on EMD in 2017.
  • While EMD has struggled in Q4, $ and € IG have done well. €IG ETPs have gained significantly since the French election in May as the geopolitical concerns surrounding this event subsided.
  • Flows since January in $IG and since May in €IG demonstrate that European investors are allocating to both € and $ investment grade credit, increasingly instead of EMD.

4. Rocking around the EMD

  • November was the just the second month of the year with outflows from emerging market debt (EMD) ETPs, which lost $750m. YTD EMD flows now stand at $8.1B across local and hard-currency exposures.
  • The majority of the outflows in November were from hard currency products, which are now over $900m behind local currency equivalents in terms of inflows on a YTD basis.
  • As mentioned above, EMD was one of the key investment themes of 2017. After a strong year, it appears that some investors are taking profits. Recent dollar weakness may have contributed to a drop-off in hard-currency EMD flows.

5. Baby it’s gold outside

  • $747m was added to EMEA-listed gold ETPs in November, making it the biggest inflow month since February.
  • The divergence in flow patterns between US-listed and EMEA-listed gold ETPs has been an enduring theme this year. In November the trend continued as US investors withdrew $175m as European investors added to holdings.
  • US-listed gold ETP flows appear closely linked to the gold price, and investors seem to react tactically to price moves in either direction. See the Golden opportunities chart. In Europe, on the other hand, investors have added fairly consistently throughout the year, suggesting that gold ETPs play a more strategic role in portfolios.

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.