European ETP flows display volatility – reports

by , 9th May 2018

See-sawing European exchange traded product flows appear to have swung back into positive territory after weathering a negative April, according to recent separate reports from BlackRock iShares and SPDR/State Street.

BlackRock’s ETP landscape update for April showed European equity ETPs weathered sizeable outflows over the course of the month as mixed macro data and stronger relative earnings in the US dented investor confidence, according to the latest ETP landscape report from BlackRock iShares.

However, a report from SPDR for the first week of May demonstrated a reverse with European ETPs enjoying $3.66bn of net inflows with equity products enjoying an “unusually strong week” with inflows topping $3.9bn.

“Last week’s bullish equity flows suggest a wave of renewed confidence in the market, but investor sentiment remains somewhat fragile,” said Claire Perryman, head of SPDR ETFs.

The fragility was in evidence in April. The BlackRock report said there was $4.3bn of outflows from European ETP products over the month. By way of contrast, US equities added $6.9bn, bouncing back from the $7.1bn of outflows seen in March, as investors warmed to the theme of the tax-cut enabled earnings boost enjoyed by US corporates in the first quarter.

“A wave of mixed eurozone macro data, combined with stronger earnings expectations for the US relative to Europe, appear to have reduced investor confidence,” commented Wei Li, head of iShares EMEA investment strategy at BlackRock.

“US equities, on the other hand, have had inflows for 12 consecutive months in the EMEA range, due to strong earnings expectations and robust macroeconomic data.”

Overall industry inflows doubled to $35.4bn in April helped by the resurgence of equity fund inflows and the continued strength of fixed income inflows. This was double the total inflows of $17.7bn in March.

In fixed income flows for the month hit a ten-month high at $17.3bn with the new money diversified across US Treasuries ($6.6bn), investment grade corporate debt ($3.2bn) and broad multi-sector funds ($3bn).

BlackRock pointed out that emerging market debt and investment grade ETPs continued to be unpopular, with outflows totalling $475m while government bond ETPs remained the most popular within fixed income for a third consecutive month, gathering $1.5bn of inflows.

“Within government bond exposures money once again went towards short-duration ETPs, $539m, as the short end of the curve looks appealing to investors given the opportunity to get yield above inflation and at the same time hide in safe havens amidst jittery market sentiment,” said Li.

The SPDR report for the first week of May suggested that in European credit flows were “muted” in the first week of May with investors favouring high yield over investment grade exposures and slightly preferring the short-to-intermediate end of the curve.

BlackRock suggested signs of potential nervousness on the part of investors can be seen in the commodities area where gold ETP inflows rose $2.9bn in April, the highest level since July 2016.

Flows into commodity ETPs saw $1.7bn added over the course of the month, the highest level of buying since February last year. In the EMEA region, commodity inflows hit $1.7bn.

“The majority of flows went into gold where $1bn of assets were gathered as a result of ongoing trade tensions and mixed equity market sentiment,” said Li.

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