Reflation trend boosts ETP flows to record highs

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February marked the best month for inflows into exchange-traded products ever recorded, according to the latest monthly BlackRock ETP Landscape report.

Global ETPs collected nearly $63bn during the month, mostly driven by a stronger appetite for US equities ($20.2bn), which also led to the highest year-to-date flows on record.

BlackRock attributes the boost in inflows to a rotation into pro-cyclical sectors, given the stronger macro factors, especially in the post-US election period.

ETPs invested in mid caps gathered $3.1bn, while $3.9bn fuelled value-focused funds and $2.7bn moved into funds investing in the financials sector.

BlackRock/iShares EMEA capital markets head of broker dealer sales and execution services says: “Since the US election, there has been a clear rotation from low volatility ETFs towards pro-cyclical factor exposures that tend to outperform in strong macro environments. Value has taken the bulk of the factor flow in Europe.

“This theme was apparent across all domiciles for US sector ETFs. For example, there were large flows into cyclicals (financials and materials) and outflows from defensives (healthcare and utilities).”

The report shows flows into European ETPs reached $19.8bn year to date, making it the second largest ever February, followed by Japanese equities bringing in $6.8bn.

In particular, European mid- and small-cap equities gathered flows of $303m surpassed large cap flows at $246m, which saw large outflows from February to October 2016.

Despite both categories attracting flows in the same month, it is only the second time ever that small caps gathered more assets than large caps, the report says.

BlackRock argues this trend reflected investors’ preference for domestic-oriented companies.

Overall in terms of asset class, over the past year there has been $29.1bn of flows into equities while fixed income took $28.3bn, marking the first time since May 2016 that equity flows have surpassed fixed income on a rolling 12-month basis.

Within fixed income, however, emerging market debt inflows totalled $1.3bn in February, which was the largest inflow within the asset class.

Mattar says the drivers behind the uptake were most likely geopolitical.

He adds: “US dollar and rate stabilisation expectations drove inflows into emerging market debt and US investment grade ETPs respectively.

“However, European investment grade ETPs experienced outflows, which may be due to fears surrounding the French election.”

Source: BlackRock