Institutional investors are increasingly turning to ETFs to gain access to a broad range of asset classes and investment objectives, especially during periods of market uncertainty, according to over-the-counter (OTC) platform provider Tradeweb.
The monthly notional volume traded of Tradeweb’s European ETF Exchange for November 2016, December 2016 and January 2017 was €15.2bn, €14.3bn and €15.3bn respectively.
Tradeweb reports that notional volume executed on its European ETF Platform for November and December 2016 was €15.2bn and €14.3bn respectively, while executed volume for January 2017 was €15.3bn. All figures were significantly above the previous monthly record of €12.7bn in July 2016.
Tradeweb believes the elevated figures during heightened market volatility, as in the weeks surrounding the recent US presidential election, are reflective of the growing adoption of ETFs as vehicles to establish tactical positions as well as to protect portfolios by diversifying economic, currency and risk exposures.
During November, activity in equity-based ETFs amounted to 58% (or €8.8bn) of Tradeweb’s overall ETF platform flow in Europe with North America equities by far the most heavily-traded sector at nearly €2.5bn in notional, of which 59% was ‘buys’. Emerging Markets equities also saw significant trading volume amounting to just below €1.8bn although a buy ratio of just 31% highlighted investors’ concerns for the sector over the impact of future US policies on trade and immigration.
Investors were net ‘short’ in fixed income ETFs traded on Tradeweb’s European ETF Platform. Emerging markets, corporate and high yield bond ETFs recorded ‘buy’ ratios of 15%, 35% and 37% respectively during November. Government bonds was the most popular fixed income category with more than €1.6bn in traded notional.
Platform activity in January however revealed a reversal in investing patterns compared to November’s trading, as the markets began to digest the new political landscape. The post-US election shift into North American equity ETFs slowed to a ‘buy’ ratio of 53%, after a high of 62% in December 2016. European equity ETFs saw strong ‘buying’ of 65% in January – up from 44% in November – and was the most popular ETF category during the month with more than €3.2bn in notional.
Emerging markets debt ETFs experienced the most pronounced change in January 2017, with a ‘buy’ ratio of 74%. Similarly, corporate and high yield bond ETFs were heavily bid, with ‘buy’ ratios of 60% and 78% respectively. Aggregate bond ETFs, which invest in both government and corporate debt securities, saw their volume increase to approximately €630m, up €248m compared to November.