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BlackRock, the world’s largest asset manager and parent of ETF giant iShares, has released its latest ETP Landscape Report, which details trends in the global ETP Industry. The report is summarized below. All flows are global and all data is through April 30, 2014.
Global ETPs gathered an impressive $33.5 billion in April, not typically a strong month of the year for industry growth. It was the best April on record for the industry.
The pickup in flows from March spanned asset classes and categories, reflecting the slowly but steadily improving outlook for the global economy. April marked a return to fundamentals and a departure from the first quarter, when emerging markets volatility contributed to the weakest start to a year for equities since 2010.
The category with the biggest rebound in April was emerging markets equity, which gathered $5.9 billion almost all from broad exposures. In a trend that began during late March, broad emerging markets equity ETPs have taken back over half the money that had flowed out since the start of the year. The majority of April’s activity was linked to short covering and the regained momentum ground to a halt in the second half of the month. However, the category remains attractive on a historical basis and relative to other asset classes for long-term investors who can withstand the inherent higher volatility. Selectivity remains important when choosing country exposures. The highest flows in April were $0.7 billion in funds with exposure to India, which is in the midst of its election. Flows into Chinese equity ETPs were modest at $0.3 billion. Growth expectations for China remain attractive relative to the rest of the world, but recent economic data has softened and made investors nervous despite a committed government.
Broad frontier markets equity gathered an additional $0.2 billion in April. Although investors should tread carefully as this is a very volatile category, the momentum has been impressive. The MSCI Frontier Markets 100 Index continues to push higher, up 11% this year following a 21% increase in 2013. Qatar and the United Arab Emirates have seen particularly attractive growth and will be reclassified as emerging markets countries during the next MSCI index rebalance. YTD flows are now $0.3 billion, notable for a category with just over $1 billion in assets.
Emerging markets debt ETPs brought in $1.3 billion to lead fixed income, which steadily gathered a broadly-diversified $6.4 billion during April. Investor appetite for debt has returned with the Fed reiterating its commitment to keep short-term rates low. Emerging markets debt ETP flows reached $2.4 billion year-to-date and are on pace to match the asset gathering seen in 2012. In a reversal from last year, hard currency funds continue to accumulate most of the flows – including $1.0 billion in April – given the volatility seen in emerging markets currencies recently.
US equity flows continued their momentum accumulating $11.0 billion in April. Economic data reports continue to suggest the economy is gaining traction. Corporate earnings have been better than expected so far, providing a lift for stocks. Also, in an encouraging sign the Conference Board’s index of leading economic indicators (LEI) recorded its third straight increase for March. US sector flows remain strong and reached $4.4 billion in April. Energy – which is attractive from a valuation perspective and also provides a hedge against an escalation of geopolitical tensions surrounding Russia and the Ukraine – was the leading sector with $1.9 billion. Outside of sectors, flows followed a shift in investor sentiment toward value over growth even as the S&P 500 remains near all time highs. US Value equity ETPs gathered $3.1 billion while growth funds shed ($1.2 billion), the widest one month gap on record. Similar behaviour was evident among US large cap and small cap, with the former gathering $5.1 billion and the latter experiencing redemptions of ($1.5 billion).
Non-US developed markets equity regained momentum to post inflows of $9.9 billion after a flat March and now accounts for 85% of all equity flows year-to-date. Japanese equity led with $4.0 billion in April, although stocks continue to struggle in the absence of a catalyst for the economy. However, the prevailing belief among investors is that the government will provide any necessary additional monetary stimulus as it pushes forward with reforms. Pan-European equity funds contributed $2.5 billion for the month. Single-country European ETPs were paced by inflows of $0.6 billion for Spain and $0.4 billion for Italy exposures, which have benefited all year from improving growth expectations. Broad-based global/global ex-US equity funds added $2.9 billion.
Ursula Marchioni, Head of ETP Research and Equity Strategy for iShares EMEA, commented: “Europe-listed ETPs have attracted more assets in the first four months of 2014 than 2013 as a whole, with $20.6bn inflows year to date, or 106% of last year’s total. So far in Europe, it is the year of fixed income. ETPs tracking this asset class have contributed 54% of the regional year-to-date inflows, followed with some lag by the second best performing theme, US equities, which has contributed 21% of year to date flows.”
She added: “Globally speaking, it’s the best April ever with ETP inflows totalling $33.5bn. Developed market equities ex-US continue to be a dominant theme, having captured nearly 30% of this month’s flows. Both emerging market equity and emerging market debt inflows topped their 14-month best. Emerging market debt ETPs now account for 4% of year to date flows, with a significant bias towards trackers of USD-denominated papers.”