April 2019 ETP flow trends

Natasha Sarkaria
Natasha Sarkaria
Investment Strategist

Key themes this month

1. Income fix: Fixed income accounts for all inflows (in net terms)
2. Deja v(E)U: European equity outflows continue
3. A quality punt: Largest monthly inflow for quality

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 stated all data is sourced from the BlackRock Global ETP Landscape at 30 April 2019.

Income fix
1. Income fix

  • Investment grade (IG), high yield (HY) and emerging market debt (EMD) have been the most popular fixed income exposures since February, and this trend was evident in April. IG flows were slightly lower last month, with $1.7B invested in the asset class in April, compared to $2.4B in March. HY flows also fell slightly, to $1.2B.
  • Buying in EMD was almost entirely into local currency (+$1.1B) as hard currency flows reduced to just $0.1B in April. So far in 2019 we have seen overall investor preferences shift from 50:50 between hard and local currency, to predominantly local currency.
  • Inflows into fixed income came despite a significant decline in flows into rates, which has been one of the most consistently popular exposures over the past 12 months. Flows dropped to $0.2B, a far cry from the $4.6B gathered in the first three months of the year.

A mirror image

Monthly flows into EMEA-listed rates ETPs, January 2018-April 2019

A mirror image - Monthly flows into EMEA-listed rates ETPs, January 2018-April 2019

Source: BlackRock Global ETP Landscape (a BlackRock tool that sources data from BlackRock and Markit) as at 30 April 2019.

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Deja v(E)U
2. Deja v(E)U

  • Outflows from European equities totalling $2.8B (equal to the March figure), coupled with outflows of $0.3B from US equity, surpassed equity inflows elsewhere, leading to net outflows from the equity ETPs in April. Outflows from European equities appear to be mirroring the 2018 trend of selling intensifying in March-April, albeit at a slightly smaller scale. Total outflows across this period in 2018 totalled $10.4B.
  • Simultaneously, investors are continuing to allocate to EM equity, which highlights the barbell approach that we have seen so far this year as inflows have gone into EM equity – a perceived ‘higher risk’ exposure – and fixed income – generally considered a more defensive asset class. Inflows into EM equity ETPs in April (+$1.5B) are more on trend with the flows seen in January and February, with March flows relatively muted at $0.4B.
  • Investors have lacked conviction on Japanese equity so far this year, with YTD flows standing at -$74M despite $93M being added last month. This lack of conviction was evident last year; prior to Q4 2018, investors were decidedly negative on the exposure.

Directionless?

Cumulative flows into EMEA-listed US equity ETPs, January-April 2019

Directionless? - Cumulative flows into EMEA-listed US equity ETPs, January-April 2019

Source: BlackRock Global ETP Landscape (a BlackRock tool that sources data from BlackRock and Markit) as at 30 April 2019.

A quality punt
3. A quality punt

  • The quality factor led factor-based flows in April, with $0.7B of inflows – the largest ever monthly inflow into the factor. Over the past two months, $1.3B has been added to the factor, which has led to it being the second most popular factor in 2019, behind dividend ETPs which have gathered $1.8B.
  • Minimum volatility flows increased month-on-month to $0.3B (from $0.1B in March), bringing total flows into the factor to $0.7B over the past three months. January (+$0.7B) remains the biggest inflow month for minimum volatility ETPs so far this year.
  • Momentum has made a comeback in April (+$0.3B) following tentative inflows in March (+$43m). Interest in the factor was non-existent at the turn of the year, with December and January flows netting out close to zero. Outflows in February suggested a lack of conviction on the factor, but this appears to have changed into Q2.

That's quality

Monthly flows into quality factor ETPs, January 2017-April 2019

That's quality - Monthly flows into quality factor ETPs, January 2017-April 2019

Source: BlackRock Global ETP Landscape (a BlackRock tool that sources data from BlackRock and Markit) as at 30 April 2019.

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.

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