Global Exchange Traded Product flows reached $27.2bn in February says BlackRock ETP landscape report

6th March 2014

Global ETP inflows finished February at $27.2bn spurred on by Janet Yellen’s February 11th address to Congress, which was well received by equity markets according to the latest BlackRock ETP landscape report.

Fixed Income flows of $19.6bn set a new monthly record amid expectations for continued low interest rates and low inflation. US Treasuries brought in $11.4bn and Investment Grade Corporate gathered $3.6bn. High Yield Corporate added $1.4bn. Despite inflows into all duration “buckets”, Short Maturity funds had a record month taking in $7.4bn.

Overall Equity flows were moderate at $5.8bn with investors continuing to favour non-US Developed Markets exposures. Japanese Equity inflows reached $4.1bn and Pan-European funds gathered $2.8bn as evidence continues to point toward improving growth in the region.

US Equity outflows totalled ($0.2bn) and Emerging Markets shed ($4.5bn). February played out as a tale of two halves and ETPs enabled market participants to efficiently reallocate capital as sentiment shifted says BlackRock.

Prior to Yellen’s remarks, Equity ETP redemptions reached ($21.2bn) while Fixed Income accumulated $16.8bn as investors waited out the equity market volatility that carried over from January.

Then the trend reversed with Equities recovering $27.1bn (largely US Equity) while Fixed Income cooled but still brought in an additional $2.8bn.

The firm says that redemptions in US Equity exposures that had emerged during late January continued into the first week of February but then reversed to inflows despite further lackluster reports on the labour market and manufacturing. The catalysts were Janet Yellen’s testimony before Congress and news of an agreement on debt ceiling legislation.

The former was an encouraging sign of a smooth Fed transition and confirmation of low-for-longer interest rate policy in conjunction with tapering while the latter pushed an obstacle to 2014 growth off until next year. US Large Cap outflows abated, finishing the month down ($2.9bn) as opposed to the ($15.7bn) witnessed in January. One consistent trend was strength in US Sectors which built on existing momentum adding $4.1bn in February driven by Health Care, Energy and Real Estate.

Global Fixed Income flows of $19.6bn set a new record in February and were led by US exposures with $16.8bn, also a new high. Flows spiked as US Equity redemptions mounted early in the month, but then slowed abruptly. It remains unclear whether the pickup this month was a sign of changing

investor behaviour or more opportunistic in nature given short-term market conditions as well as range-bound interest rates and low inflation expectations says the firm. Over two months it brings year-to-date Fixed Income flows to $23.1bn, close to the total for all of 2013 at $27.1bn.

US Treasuries and Investment Grade bonds led the way accumulating $11.4bn and $3.6bn this month, respectively. High Yield added $1.4bn.

European Fixed Income exposures continued their strong run gathering $1.3bn, just off the pace from January.

Short Maturity Fixed Income flows also reached their highest monthly total on record at $7.4bn after subsiding late in 2013.

While the outlook for Emerging Markets Equity remains tenuous in light of tension in the Ukraine and Chinese currency volatility, it has stabilized notably since January and so have ETP flows. February brought additional outflows of ($4.5bn) but they were concentrated early in the month.

US$ 1,2 Year-to-date saw outflows of ($13.2bn) and have now surpassed the total of ($10.3bn) for all of 2013. Valuations remain relatively attractive by historical standards for longer-term investors willing to ride out the volatility inherent in the asset class and encouraging forecasts for individual economies such as South Korea also continue to present opportunities for selective investors says the firm.

Flows into Pan-European Equity exposures remained strong reaching $2.8bn in February. Data released mid-month indicated Q4 Eurozone GDP growth of 0.3% – above expectations for 0.2% – and February inflation of 0.8% annualized that remains low but has stabilized recently.

Single country funds have also seen momentum in flows continue to build this year. They gathered $1.3bn in February led by Italy and Switzerland with $0.4bn each.

In aggregate, flows into European Equity exposures totaled $4.2bn during the month.

The pace of Japanese Equity flows remained strong with $4.1bn added in February predominantly among a select set of Nikkei and TOPIX funds. Year-to-date the total has already reached $8.2bn. Inflows had tapered late in 2013 following impressive asset gathering of $26.0bn during the first half. Despite evidence that economic growth remains moderate – the latest Q4 data revealed GDP growth of 0.3%4 – the government reasserted its commitment to boost record stimulus measures if needed.

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