BlackRock reports latest Global Exchange-Traded Product (ETP) Flows – January 2021

Global exchange-traded product (ETP) flows slightly picked up in January, with $85.5B of inflows (vs. $84.0B in December 2020). Flows into equity ETPs accounted for the majority of the inflows, as was the case in the previous two months. Fixed income flows rose slightly to $21.2B, and commodity flows returned to positive territory for the first time since October, at $3.1B.

 Key themes in January:

1. Sectors in focus: investors continue to differentiate through sectors
2. Diversifying equity exposure: broad-based buying
3. Link(er) up: inflation-linked bond flows continue to test record levels
4. Sustainable sets the standard (again): another record month of flows

Sectors in Focus

Buying across sector ETPs remained strong in January, in a continuation of the trends seen towards the end of 2020. Flows into financials totalled $6.8B, boosted by the broad uptick in sentiment towards cyclicals in the days following the Georgia vote. This was the second-highest inflow month on record for financials ETPs, falling short of the $7.6B added in November 2016.

• Cyclical sectors continued to be popular: energy gained a record $4.9B of inflows, industrials ETPs added $3B (the second-highest inflow month on record), and materials gathered $1.9B, including a record $0.6B into EMEA-listed products.
• Meanwhile, flows into tech ETPs also rose, hitting a record $8.5B in January. Tech was the most popular sector in 2020 and has started 2021 on a similar footing. Differences below the surface show an increase in selectivity: flows into EMEA-listed subsector and thematic funds have increased, whereas in 2020, buying of broad tech exposures led the inflows. Flows into healthcare –which had also been popular in 2020 –dropped to almost flat in January, with US investors in particular turning cool on the sector; EMEA-listed buying has persisted, albeit at lower levels.

2. Diversifying equity exposure

• Buying in broad DM equity ETPs and EM equity ETPs drove the inflows in January ($36.3B), with regional exposures falling out of favour. Global flows into US equities dropped to the lowest level since July 2020 ($3.3B), and flows into European equities fell to $0.8B, from $2.6B in December. Under the surface, there was divergence across listing regions, with US equity ETP flows driven exclusively by EMEA buying: investors added $3.1B to EMEA-listed US equity ETPs –predominantly into sustainable products –while net flows into US-listed US equity ETPs were flat, leading to the overall drop in US equity buying.
• Flows into European equities were more broad-based, with US-listed flows accounting for approximately half of the $0.8B of European equity buying, and representing a pickup in sentiment in US-listed European equity ETPs, which had registered outflows in December.
• EM equity flows have stayed reasonably consistent over the past three months, and recorded $10.4B of net inflows in January. US-listed flows made up the bulk of the inflows, with EMEA-listed inflows accounting for $3.7B in January and APAC-listed flows ending the month flat.

3. Link(er) up

• Inflows into inflation-linked bond ETPs hit $4.2B in January, just shy of the record inflow month of $4.3B in June 2020, helped by a pickup in US-listed flows. The continued allocation to linkers ($3.8B was added in December) has come alongside expectations for a pickup in inflation over the medium term, as economies open up.
• Elsewhere in fixed income, multisector FI products led the inflows for a second consecutive month ($12.8B), with outflows from high yield (HY) at the headline level, and flat investment grade (IG) flows. The cooling conviction on credit is another trend that has carried over from 2020.
• Delving a little deeper, EMEA-listed flows into HY in January (at a reduced $0.4B) were offset by $3.8B of outflows from US-listed HY. The opposite was true for IG: selling out of EMEA-listed IG ETPs (-$0.9B) was more than made up for by the $1.5B of inflows into US-listed counterparts.

4. Sustainable sets the standard (again)

• The march to sustainable shows no signs of stopping, with a record inflow month in January: $17B was added to sustainable ETPs across US and EMEA-listed products, with monthly inflows up $10B vs. this time last year. Sustainable ETP AUM is now within touching distance of $200B –it currently stands at $187B, up from $62B this time last year.
• Within sustainable ETPs, climate-oriented thematic ETPs led the inflows ($5.0B), with flows largely going into US-listed ETPs. The ‘Best-in-Class’ segment of sustainable products was also popular, with just under $5B added across US, world and EM exposures.
• Investors added to US exposures via ESG optimised strategies, with $2B of inflows, split across listing regions.