Record first quarter for ETFs as cash comes off the sidelines

Apr 2nd, 2013 | By | Category: ETF and Index News

The global exchange-traded products (ETP) industry recorded its best first quarter (Q1) on record in 2013, amassing inflows of $70.1 billion compared to the previous record of $65.5 billion set in 2012, according to the latest ETP Landscape report from BlackRock, the owner of iShares.

Record first quarter for ETFs, reveals BlackRock report

Russ Koesterich, Chief Investment Strategist at BlackRock.

Equity ETFs accounted for $65.1 billion of flows, with developed markets accounting for $60.5 billion.

At the country level, flows into US equities accounted for $37.3 billion, up 80% compared to Q1 2012. Japan also performed strongly, pulling in $8.0 billion, as the country stepped up efforts to defeat deflation.

The WisdomTree Japan Hedged Equity ETF (DXJ) was the segment’s stand-out performer over the quarter, gathering $4 billion of fresh cash.

Inflows into emerging markets equity ETFs were moderate, finishing the quarter with positive $4.6 billion despite a shift in investor sentiment that resulted in outflows during February and March.

Low-volatility equity ETF assets grew 76% in Q1, with net new assets of $4.1 billion. Low-volatility ETFs – which also encompass minimum volatility and minimum variance products – provide exposure to equities while minimising price volatility compared to traditional market cap-weighted indices.

There are now 34 low-volatility equity ETFs available globally, which together hold $11.2 billion in assets. The PowerShares S&P 500 Low Volatility Portfolio ETF (SPLV) dominates the segment with more than $4 billion assets.

Inflows into fixed income ETFs remained strong at $11.6 billion, the eighth consecutive quarter with inflows of at least $10 billion. As investors continued to look to reduce portfolio duration in anticipation of interest rate rises, ultra short-term, short-term and floating-rate exposures accounted for $9.4 billion or 81% of fixed income ETP flows.

With confidence returning to markets – major US equity indices reached record highs during the quarter – gold outflows continued to weigh, totalling $9.2 billion for the quarter. This dragged down the commodities sector as a whole, which lost $8.5 billion compared to inflows of $6.9 billion in Q1 2012. The world’s largest gold ETF, the SPDR Gold Shares ETF (GLD), lost more than $9.5 billion in assets under management over the quarter.

According to Dodd Kittsley, Global Head of ETP Research at BlackRock: “The wide variety of unique exposures that ETPs offer, from Japanese equities to short-term fixed income and minimum volatility, has been a crucial factor in the industry’s strong ongoing growth. Flows through the first quarter reflect how ETP investors can reposition their portfolios to act on market opportunities that they see emerging, even in the midst of continued macro uncertainty.”

Russ Koesterich, Global Chief Investment Strategist at BlackRock, added: “Investors registered renewed confidence in developed equity markets with record ETP flows in the first quarter. Despite continued market volatility, investors recognise that the fundamentals in the United States are generally favourable, given strong corporate earnings and cheap equity valuations. Rather than the much-discussed ‘great rotation’ from bonds into equities, the first quarter showed investors moving cash from the sidelines into equities, and preparing for a rise in interest rates by rotating within fixed income into short-term and floating-rate ETFs.”

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