BlackRock: Global ETP Flows – risk on in 2022

Risk on in 2022: inflows into global ETPs in January were down on December’s bumper $150.6B, with $70.9B added, but the proportion of equity buying was at the highest level since March 2020. Equity flows of $66.2B accounted for 93.5% of total ETP flows, up from 83% in December. Fixed income flows, in contrast, finished January in marginally negative territory (-$1.5B), while commodity flows showed signs of life amid market volatility with $5.1B added

Key themes in January:

Risk on

At the regional level, equity trends were similar to what we observed in January 2021: US equity flows accounted for $7.4B (down from $87.0B in December and vs. $3.3B in January 2021), while flows into EM equity – predominantly China exposures – and European equity picked up, accounting for a larger share of overall equity flows.

EM equity notched up a record $16.8B of inflows in January, beating the previous record of $16.0B set in December 2019. In line with the previous month’s trends, single EM exposures accounted for the vast majority of total flows ($12.6B), with $11.7B going to Chinese equity alone. Inflows into China were broad based, with record monthly levels for EMEA-listed ($1.0B) and US-listed ($3.1B) Chinese equity ETPs.

European equity flows also picked up ($8.0B), making January the largest inflow month since May 2021. In contrast to the 2021 trend of international buying outpacing domestic flows, EMEA-listed ETPs ($6.1B) led inflows in January.

Fixed income turns negative

January marked the first outflow month for fixed income ETPs (-$1.5B) since the initial Covid selloff (- $27.5B in March 2020). These outflows were driven by the largest monthly selloff on record for high yield (HY) (-$7.6B), led by US-focused, US-listed HY. Staying in credit, investment grade flows were fairly flat (-$0.2B).

Inflation-linked bond ETP flows turned negative for the first time since April 2020, with -$1.7B out amid a broad market repricing of central bank policy paths. While investors sold across listing regions, US-focused inflation-linked ETPs dominated selling, as eurozone linkers notched up small inflows ($0.2B).

With all eyes on where investors are not buying in fixed income, EMD inflows have flown under the radar for several months. January flows of $1.2B continued the buying trend, with China bonds particularly in demand ($1.4B), despite -$1.8B of outflows from hard currency.

A value tint in flows

All eyes have been on the value rotation in markets, but in flows, it has been more of a tilt. While inflow into value-tilted cyclicals have undoubtedly picked up – financials led the way in January with a record $10.9B added – investors haven’t sold out of their quality exposures.

Tech flows came in at a muted $0.4B for the month, while healthcare flows were at $3.2B – making it the third-most popular sector in January. Highlighting the investing we’ve seen across the barbell, utilities and energy flows picked up to $1.3B and $3.1B, respectively. In commodities, gold buying also rose to the highest level since May 2021, with $2.8B of inflows.

After gathering inflows in the first two weeks of the month, buying in industrials reversed to end the month in negative territory (-$0.2B), the ninth consecutive month of outflows. Meanwhile, materials flows turned positive, with $0.7B of inflows in January.

Flow momentum into sustainable stutters

Sustainable flows did not quite match wider ETP industry flows in January, with a significant slowdown in momentum from December. With $7.3B inflows across the US and EMEA, flows for January totalled just over half of the $13.4B added in December 2021.

EMEA-listed flows saw the more significant drop of the two, falling from $12.7B in December 2021 to $6.7B in January 2022, while US-listed flows dropped from a lower base of $0.8B to $0.5B from December to January.

The majority of EMEA-listed flows went into best-in-class strategies, which saw inflows of $4.9B. ESG-optimised strategies came in second with $1.1B, followed closely by climate-exclusive strategies, which recorded their best month to date, with $1.0B added. With -$0.2B out, screened strategies saw their first net outflow month since March 2020.

Breaking down US-listed flows, best-in-class strategies and environmental strategies also registered January outflows, with net sells of -$0.8B and -$0.6B, respectively. Optimised strategies, however, saw inflows of $1.28B and were the main driver of net inflows, alongside screened strategies, which gathered $0.6B for the month.

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