European investors poured over $1bn assets into a global small cap ETF last week amid predictions the rotation to value and size stocks will continue into the new year.

According to data from Ultumus, the $2.9bn iShares MSCI World Small Cap UCITS ETF (WSML) saw $1.1bn inflows in the week to 18 December, the highest across all European-listed ETFs.

Along with a dramatic return of value, small cap stocks have seen a resurgence over the past quarter following news of an effective coronavirus vaccine on 9 November.

Highlighting this, WSML has returned 21% over the past three months versus just 12.2% for the iShares MSCI World UCITS ETF (IDWR).

Athanasios Psarofagis, ETF analyst at Bloomberg Intelligence, said the inflows were driven by investors positioning for a further rotation into small caps next year.

It has been a similar story for value ETFs since the vaccine news with investors looking to capture the sharp return to the factor which has underperformed over the past decade.

The iShares Edge MSCI USA Value Factor UCITS ETF (IUVL) has seen $849m inflows over the past two months, according to data from ETFLogic, while investors have piled $826m into the iShares Edge MSCI World Value Factor UCITS ETF (IWVL).

As markets head into 2021, Richard Dunbar, head of multi-asset research at Aberdeen Standard Investments, said he expected to see a large dispersion in returns between countries, sectors and companies.

Performance shows not all value ETFs are created equal

“While ‘value’ and ‘growth’ are often discussed in this context, it is our view that these monikers are somewhat simplistic,” Dunbar continued.

“We are happy to lean into more cyclical markets and sectors, but at the same time remaining aware of the challenges faced by some of the constituents of these areas of the market.”

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