Mifid transparency shows how ETFs coped with pullback

by , 12th February 2018

The new requirements on the visibility of ETF trading brought in by Mifid II meant investors were provided a glimpse of the two-way business that took place during last week’s market wobble, according to data released by BlackRock iShares.

At the height of the equity market volatility on Tuesday last week, BlackRock iShares said that of the $8.8bn traded across its iShares EMEA range, circa $4.9m was off exchange but now visible to investors.

BlackRock iShares said the new reporting requirements were shining a light on where and how much ETF trading was taking place. In particular, BlackRock iShares said there was an evident divergence of investor views with some looking to ‘buy the dip’ even as others were selling out of previously popular low volatility strategies.

“We believe the slide was mainly driven by an unwinding of popular trades betting on low equity volatility,” said Wei Li, head of investment strategy at iShares EMEA. “The pullback could be an opportunity to add risk especially as stretched valuations had been a concern.”

The iShares Core S&P 500 UCITS ETF was the most traded ETF on the day, with a volume of trade hitting $370m. It was closely followed by the iShares EURO STOXX 50 UCITS ETF which saw trading v9olumes hit $349m.

Top 10 European iShares ETF trades by volume, 6 Feb

Source: BlackRock iShares

Last week’s market pullback came after another month of booming European exchange-traded product (ETP) flows in January.

According to figures from BlackRock, EMEA-listed ETPs gathered in $14.1bn, equalling the largest monthly inflow of all-time in January 2015.

Of that figure, equities represented $12bn or 85% of the total. Total global inflows for January just topped $100bn, 55% higher than the previous global record in 2008. BlackRock iShares suggested the record was driven by the risk-on sentiment of 2017 persisting. In the US, the positive sentiment generated by the recent tax overhaul lay behind a US equity inflow of $35.8bn.

Patrick Mattar, a member of the iShares EMEA capital markets team at BlackRock, said that the figures suggested Europe was very much back in favour among investors.

“The $3.8bn added to EMEA-listed European equity ETPs made January the largest inflow month since July 2017. This inflow follows an outflow month in December, which ended a 15-month run of inflows, dating back to August 2016.”

Mattar added that one notable development was the amount of money now going into funds that track robotics and AI indices, with $585m going into just three funds.

“If we broaden the Robotics fund universe to include US- listed ETFs and all active mutual funds globally that invest in the theme, the path of the total assets under management over the last three years is quite remarkable,” he added.

“Starting at a total of $206M in January 2015 the assets have grown to $24.4B across 16 funds. It appears that investors are becoming increasingly comfortable using indexed vehicles to access long term thematic exposures that capture themes such as Robotics which have historically been dominated by active managers.”