ETP Flows: 2019 in review

Natasha Sarkaria
Natasha Sarkaria
Investment Strategist

Key themes in 2019:

1.Second highest on record: fixed income drives strong year for flows
2.Reversal in EM and European equity: a strong Q4 for equity ETPs
3.Hitting new highs: investment grade (IG), high yield (HY) and emerging market debt (EMD) all set new records
4.Home bias: investors in US-listed ETPs favour US equity, while investors in EMEA-listed products favour European equity
5.Factors and sustainable investing: standout year for sustainable and factor ETPs

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Unless otherwise stated all data is sourced from the BlackRock Global ETP Landscape at 31 December 2019. All amounts given in USD.

1. Second highest on record

  • It was a record year for fixed income; the $257.3B added in 2019 is the largest yearly inflow on record, and almost double the inflows in 2018 ($132.1B). Investors consistently added to fixed income over the course of the year, with IG a particular beneficiary.
  • On the other hand, equity flows dropped to $286.0B (vs. $368.7B in 2018), with strong inflows in the last quarter making up for record monthly outflows from the asset class in May and August (-$39.2B out across the two months).
  • Flows into global commodity ETPs recovered in 2019 to $18.0B, up from relatively flat flows in 2018, and reaching the highest level since 2016. Inflows into gold drove the recovery in flows, with investors adding $18.9B to the precious metal, predominantly between June and October.

Bouncing back

Annual flows into global ETPs, 2016-2019

Annual flows into global ETPs, 2016-2019

Source: BlackRock Global ETP Landscape (a BlackRock tool that sources data from BlackRock and Markit) at 31 December 2019.

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2. Reversal in EM and European equity

  • The headline equity figures mask a rollercoaster year of flows for the asset class – at first glance, 2019 looks to have been another consistent year for US equity flows ($162.9B), while European equity outflows tempered to -$3.4B, and emerging markets (EM) and Japanese equity flows dropped to $32.0B and $30.8B respectively.
  • The roles were actually somewhat reversed at the start of the year; US equity flows got off to a poor start with $23.4B out in January, while EM equity inflows of $12.7B built on strong momentum from Q4 2018. Outflows from US equity ETPs in May and August – which came amid broad selling of equity ETPs globally – were outweighed by consistent inflows in the last four months of the year.
  • European equity flows finally returned to positive territory in September, and the region continued to gather assets into the end of the year ($14.9B over four months). May-October turned out to be a difficult time for EM equity ETPs, with investors selling $17.3B of the exposure over this period, including a record $11.6B out in August. A recovery in the fourth quarter led to inflows of $25.0B across November and December, which helped to offset previous outflows.

Q4 resurgence

Cumulative global flows into EM, European and Japanese equity ETPs, Jan-Dec 2019

Cumulative global flows into EM, European and Japanese equity ETPs, Jan-Dec 2019

Source: BlackRock Global ETP Landscape (a BlackRock tool that sources data from BlackRock and Markit) at 31 December 2019.

3. Hitting new highs

  • Records tumbled for fixed income flows in 2019 as the asset class gained $257.3B. IG, HY and EMD all gathered record inflows, with investment grade the standout exposure as inflows more than tripled from 2018 ($67.4B).
  • EMD flows – despite the record year – stuttered in the same way as equity flows in May and August amid market volatility. Flows ended up being fairly evenly split between hard ($6.8B) and local currency ($7.2B), despite four months of outflows from hard currency ETPs.
  • An honourable mention goes to rates ETPs, which gathered $62.6B in 2019, down from $71.4B in 2018 but comfortably the second largest year on record. Inflows remained fairly steady despite a drop off in short-term ETP flows, which fell from $42.2B in 2018 to $10.6B in 2019. Buying in blended maturities and renewed interest in long-term ETPs, alongside consistent interest in intermediate term products, supported the headline figure. Within rates, there was an overwhelming preference for US treasuries, which accounted for $55.7B of inflows.

Leading the way

Cumulative flows into select global fixed income ETP categories, Jan-Dec 2019

Leading the way

Source: BlackRock Global ETP Landscape (a BlackRock tool that sources data from BlackRock and Markit) at 31 December 2019.

4. Home bias

  • European equities accounted for a higher proportion of EMEA-listed equity flows in Q4 compared to the composition of global flows –European equity flows accounted for 30% of all flows into EMEA-listed equity ETPs in the last quarter, vs. just 2% for US-listed ETPs. Investors in US-listed equity ETPs also displayed a home bias, with 62% of flows going into US equity ETPs.
  • Flows into EMEA-listed EM equity funds also increased YoY, versus a decline at the global level. Investors in EMEA bought the exposure quite heavily in Q1, and again into the end of the year, offsetting outflows between August-October
  • Investors in EMEA-listed ETPs expressed more of a preference for fixed income than at the global level, where equity flows slightly outstripped fixed income. IG was the largest allocation within EMEA-listed fixed income ETPs ($19.6B), while EMD also made up a sizeable proportion of inflows (15%) when compared to US-listed EMD products (<1%).

Diversifying equity exposures

Q4 2019 flows into selected EMEA and US-listed equity ETPs

Q4 2019 flows into selected EMEA and US-listed equity ETPs

Source: BlackRock Global ETP Landscape (a BlackRock tool that sources data from BlackRock and Markit) at 31 December 2019.

5. Factors and sustainable investing

  • 2019 was also a standout year for factor ETPs, which gathered $71.2B. At an absolute level, most money went into US-listed ETPs ($58.5B), but this shouldn’t detract from the 2.8x growth in EMEA-listed factor ETPs, which gained $10.1B.
  • Low volatility was by far the most popular factor for a second consecutive year, with a record $26.1B of inflows, despite popularity waning in the latter two months of the year (-$2.0B), which put an end to a 19 month inflow streak stretching back to April 2018. Quality once again took the mantle in second place, with flows more than doubling to $9.1B, yet another record.
  • ESG and responsible investing ETPs also had a record year, gathering $21.8B of assets, up from $7.6B in 2018. SRI was the most popular subcategory within sustainable investing, with $10.5B added across equity and fixed income.

Low vol leads the way

Cumulative flows into select global factor ETP categories, Jan-Dec 2019

Cumulative flows into select global factor ETP categories, Jan-Dec 2019

Source: BlackRock Global ETP Landscape (a BlackRock tool that sources data from BlackRock and Markit) at 31 December 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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