BlackRock reports ETP flows down over October during pre-US election jitters
BlackRock reports that global flows into ETPs fell to USD47.4 billion in October, down from USD55 billion in September, despite a pickup in fixed income buying to USD23.3 billion.
Equity flows were behind the overall drop, falling to USD22.4 billion in October, while commodity products recorded their lowest monthly inflows this year despite USD1.5 billion of gold and silver buying.
BlackRock found there were three key trends in October: Pre-US election jitters which saw US equity flows fell to their lowest level since July; Eyes on China as flows into China bonds and equities continued and Steady on rates as rates inflows matched the previous month.
Looking at the pre-US election jitters in the markets, BlackRock writes that there was an overall drop in flows into US equity exposures in the run up to the US election.
“US equity ETP inflows fell to their lowest level since July –in a similar manner to the trend we saw ahead of the 2016 US election –with just over USD4.4 billion of inflows in October 2020 compared to almost USD17 billion in September. International investor sentiment appears to have been a large driver of this fall; EMEA-listed US equity ETP inflows dropped to just 15 per cent vs. September’s inflows.”
However, the firm finds that, at the same time, the recent trend of selectivity in US equity flows continued, with cyclicals remaining in favour. Sectors such as materials and industrials gathered inflows, while healthcare continued to post outflows despite some inflows at the global sector level. Tech remains popular with USD1.3 billion added in October, BlackRock notes.
Overall global equity Inflows in October were largely driven by a pickup in emerging market (EM) and broad developed market buying, which helped to offset the drop in US equity buying, and European equity flows turning negative for the first time since June (-USD1.8 billion).
Turning to China, BlackRock writes that EM debt ETPs have consistently gathered inflows since March, with USD12.6 billion added since the mammoth USD8.3 billion that was lost in March. October’s inflows of USD3.6 billion continued to show a large preference for hard currency products, while China bonds remain popular. The USD0.9 billion added in October –largely into EMEA-listed ETPs –is the second highest inflow month of the year (after a record USD1.1 billion in August), the firm says.
“Investors simultaneously continued to allocate to Chinese equities, with USD1.5 billion added in October, driven by buying in US and EMEA-listed products. In fact, APAC-listed flows into China equities amounted to just 27 per cent of the monthly inflows, following the trend that we saw towards the end of 2019 of international money outpacing domestic inflows.”
Inflows into EM equity continued to be fairly well split between single country and broad EM exposures, BlackRock notes. “This marks a change from the inflows we saw after the Covid volatility earlier this year; inflows in March and July were almost entirely into single country ETPs.”
Commenting on rates, BlackRock writes that rates flows remained remarkably consistent in October, matching September’s inflows of USD4.4 billion, off the back of lacklustre flows over the summer. Inflows into US sovereigns continued to dominate, albeit to a lesser extent than in September (USD2.4 billion vs. USD4 billion, respectively). In the credit space, investment grade (IG) flows appeared to have found a more solid footing in October, while high yield (HY) flows started to recover, before dropping off to close the month USD1.7 billion out, the firm says.
The rest of the flows in rates were spread across sovereign exposures, with eurozone rates gathering USD0.3 billion of inflows, helping to compensate for the USD0.4 billion of outflows in September. October also saw inflows into single country sovereigns such as Italy and Germany, BlackRock notes.
Investors continued to allocate to inflation linkers with a further USD2.3 billion added in October (the fourth highest monthly inflows of the year). This takes YTD flows to USD11.5 billion, just short of 2016’s record inflows (USD11.9 billion).