iShares reveals summer lull has hit ETP flows
A drop in US-listed US equity flows is almost entirely responsible for July’s fall in equity flows, iShares says, with net inflows of USD20.6 billion significantly down from the USD67.5 billion added to US-listed US equity in June, which was the second-highest inflow month on record for the exposure.
The summer lull looks to be in full effect, iShares writes, as flows into global ETPs in July hit their lowest level since October 2020 with USD75.5 billion added, down 45 per cent on June’s USD135 billion.
The fall in headline figures was due to equity flows more than halving to USD51.9 billion, while fixed income flows rose to USD24.3 billion – the highest level in three months – and commodity flows remained relatively flat.
Despite the drop in headline flows, buying in global ETPs in 2021 has now surpassed 2020’s annual total, with USD769.2 billion added YTD vs. USD757.9 billion for all of 2020.
Flows into EMEA-listed US equity ETPs dropped slightly to USD2.8 billion (vs. USD3.4 billion in June) The inverse was true for European equity ETPs, where buying fell to the lowest level since January 2021 (USD1.3 billion, vs. USD6.2 billion in June).
In European equity, the larger drop in flows came from EMEA-listed ETPs, which contracted 84 per cent MoM to just USD0.3 billion, while US-listed flows fell 79 per cent to USD0.9 billion.
The firm writes that emerging market (EM) equity was a relative bright spot in July, with flows increasing to USD3.7 billion (vs. USD0.5 billion in June), while Japanese equity flows also picked up to the same figure. Within EM equity flows, APAC-listed exposures recovered from the USD4.5 billion out in June with USD1.4 billion added in July, offsetting the fall in EMEA-listed flows from June’s net buy of USD1.7 billion to a net sell of USD0.2 billion in July.
Single exposure ETP flows outpaced broad EM, reversing last month’s trend, with investors allocating to China equity. Flows into inflation-linked bond ETPs set a new monthly record in July (USD4.5 billion) in July, surpassing the previous record set in May (USD4.4 billion).
“In line with the trend we have seen so far this year, July flows largely went into US inflation linkers, but investors continued to allocate to global and eurozone linkers as well, albeit at much lower levels – USD0.1billion and USD0.2 billion, respectively,” iShares writes.
“Buying in linker ETPs has now hit USD26.1 billion for the year, more than the annual inflows into the exposure from 2018-2020 combined (USD23.6 billion). Elsewhere in fixed income, rates continued to be popular with inflows of USD4.7 billion, while EM debt ETP inflows hit the highest level in three months, with USD3.2 billion added.”
Buying in credit remained muted, with the USD0.8 billion added to investment grade (IG) offset by the USD1.1 billion out of high yield (HY) exposures, iShares writes.
“The quality tilt in sector flows that we highlighted in June carried over into July, with tech flows up to USD5.4 billion – the highest level since February’s record USD13.4 billion – and healthcare flows rising to USD4.3 billion – the highest level since the record USD7.1 billion added in April 2020.
“This has come at the expense of cyclical sectors, with energy, financials, materials and industrials all registering outflows – the first time since May 2019 that all four sectors have simultaneously seen a net monthly sell. Delving deeper, tech flows predominantly went into US exposures (USD2.7 billion), while China tech notched up a record inflow month with USD1.9 billion added.
“US exposures also accounted for USD3.3 billion of all healthcare flows, and USD3.2 billion of the USD3.3 billion outflows from financials.”
Quality factor ETPs hit a record USD2.9 billion in July, smashing the previous record of USD2.5 billion set in January 2019. While value flows succumbed to the rotation with record outflows of USD1.6 billion, YTD inflows into value are still on track to be a record with USD17.7 billion added so far in 2021 (vs. the standing record of USD6.7 billion in 2020).
iShares writes that July saw a significant pickup in sustainable flows, with net inflows for US and European-listed ETPs up to USD11.7 billion for July (vs. June’s USD8.7B). This made it the fifth largest NNB month on record, following the four months from November 2020 - February 2021.
The bulk of July’s sustainable flows came from EMEA, with USD8.8 billion added to sustainable strategies, iShares says. These were dominated by ESG best-in-class and ‘Factors + ESG’ focussed strategies, which brought in USD3.9 billion and USD3 billion, respectively. Within ESG best-in-class, US (USD930 million) and global equity exposures (USD518 million) led the way, while European fixed income ESG saw a net buy of USD378 million.