Risk on sentiment keeps US ETP assets around all-time highs
Exchange-traded product assets in the US rose by USD24.5bn to USD1.22trn last month, reaching a new all-time high and boosting AUM growth to a decent 16.4 per cent growth on a year-to-date basis, according to Deutsche Bank.
Global ETP industry assets rose to USD1.66trn, or 15.6 per cent YTD.
US ETP flows experienced inflows of USD4.9bn during August (+USD93.4bn, 8.9 per cent of last year’s AUM). Within long-only ETPs, total flows were +USD3.6bn in August vs. +USD15.7bn in July.
Equity, fixed income, and commodity long-only ETPs experienced cash flows of -USD3.8bn, +USD5.0bn, and +USD2.3bn, respectively.
Asset class returns for the month of August clearly point to a comeback to risk, however the ETP flows read may look inconsistent at first glance.
A second look, however, provides further understanding. Most of the outflows from equities (about USD5.7bn) came from two ETPs (SPY and IWM) which are commonly used for hedging purposes and hence can experience large cash flow fluctuations which may not be consistent with the underlying investment trend. Excluding these outflows, equity flows would have been positive (about USD2.0bn), with inflows to broad EM and DM ex US equities, and flat flows for US equities. Furthermore, investors turned to cyclical sectors while exiting defensive ones.
In the fixed income ETP space, investors favoured credit by focusing on corporates. And in the commodity space, gold was the highlight of the month following the newly reported positions of large hedge fund managers and the likelihood of additional easing. Overall the long-only ETP flows still suggest that the underlying investor sentiment is leaned towards risk on.
Some of the relevant flow trends of the month were US equity (-USD5.9bn), investment grade debt (+USD3.4bn), and gold (+USD2.3bn).
The new additions to the ETF offering give access to emerging markets, income-driven investments, and quantitative strategies.
ETP turnover totalled USD0.97trn last month, down by 9.0 per cent from the previous month figure of USD1.07trn, and also 41 per cent under last year’s monthly average of USD1.65trn.
ETP trading made up 25 per cent of all US cash equity trading in August, down from last year’s peak of 37.5 per cent in August, and still below its three-year monthly average of 29 per cent.
Equity ETPs turnover fell by USD106bn or 11.3 per cent to USD0.8trn during August, while fixed income and commodity ETPs turnover rose by USD2.9bn (totalling USD69.8bn) and USD8.7bn (totalling USD58.5bn) during last month, respectively.
There were six new ETFs listed during the previous month. Four of them were listed in the NYSE Arca, while the other two in the Nasdaq. The new products cover multiple asset classes such as equity, multi asset, and alternative.
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