Investors return to risk assets; money floods back into equity and high yield bond funds; Demand for commodities falters, but gold ETPs continue to attract assets; European physically-backed products gain market share from European synthetic ETPs; October ETP inflows set new high for 2011; global assets up 6.4% year to date…
Sign up for our weekly Newsletter and receive the latest ETF and ETC news.
Click here to register for your free copy
Investor sentiment towards higher risk and higher yielding asset classes improved during October 2011, following upbeat news on potential solutions to Europe’s debt crisis and positive Q3 earnings for U.S. corporations.
This according to the latest “ETF Landscape” report from the BlackRock Investment Institute (BII) that tracks global asset flows into exchange traded products (ETPs), a market that had assets under management of US$1.578 trillion as at the end of October. The total number of ETPs increased slightly to 4,152 from 4,102 at the end of September.
Kevin Feldman, Managing Director, BlackRock commented: “Investors battled volatile market conditions during October. Poor sentiment in European bond markets and below expectation GDP growth from China was in part offset by generally better-than-expected US economic data and solid Q3 earnings. While flows into ETPs suggested a preference for safe haven assets in early October, this was overtaken by a decisive move to equity assets and high yield bonds later in the month. Flows during October demonstrate that the risk-on trade has definitely resumed.”
Investors’ appetite for risk assets returns
Investors ploughed US$21.3 billion into equity ETPs during October, with funds and products offering exposure to North American equities gathering new assets most strongly. ETPs offering German equity exposure through the DAX index comprise two of the top three asset-gathering funds in 2011.
After two months of heavy outflows, investors re-embraced emerging markets equity exposure as part of this trend towards higher risk, and potentially higher yield asset classes. Emerging market equity ETPs attracted US$4.1 billion of new assets during the month. This area had so far underperformed most equity categories in 2011, with only US$0.7 billion of new assets year to date.
ETP investors’ interest in high yield bonds soared during October. The asset category is attracting new money because of the extra yield provided above investment grade bonds, and credit risk remains historically low, with Moody’s Corporation calculating a speculative-grade default rate of just 1.8% during Q3 2011.
Global ETP inflows into high yield bonds stood at US$2.4 billion during the month. In contrast, government bond flows turned negative during October as the safe haven trade receded.
Demand for commodities falters, but gold ETPs continue to attract assets
October brought outflows for most commodity asset classes with an exception for gold-related products. For the fifth month in a row, gold ETPs attracted new money.
Investors traditionally use gold as a hedge against currency devaluation or potential inflation, a safe haven during political or economic uncertainty, and as a portfolio diversifier. Gold ETPs gathered US$2.0 billion of global net inflows in October and $7.3 billion on a year to date basis.
On a global basis, physical gold ETPs now hold approximately 2,300 tonnes, placing them fifth behind the U.S., Germany, Italy and France official sector holdings.
“Gold ETPs have remained popular with investors notwithstanding recent gold price
declines. Given continued economic uncertainties and the U.S. monetary policy of keeping short-term rates near 0%, we expect to see continued investor demand for gold in the months ahead,” according to Mr. Feldman.
European physically-backed products gain market share from European synthetic ETPs
Investors in Europe have recently shown a preference for funds and products that are physically-backed rather than derivative-backed.
Derivative-backed products often referred to as “synthetics,” seek to replicate the returns of a benchmark index principally through the use of derivatives such as swaps, while physically-backed products replicate returns by purchasing the underlying physical assets.
Synthetic products listed in Europe experienced outflows of US$7.3 billion over the last three months, while US$6.0 billion flowed into physically-backed ETPs during the same period.
The difference in demand in October was most prominent in European equities and commodities. Physically-backed products in the Europe broad regional non-sector equity asset class gathered US$779 million of new assets, while synthetics in the same category had outflows of US$608 million. Physically-backed gold ETPs gathered US$1.2 billion during the month, while synthetic gold ETPs had outflows of US$2.2 million.
In Europe today, physically-backed products command more assets under management than synthetic products (US$174 billion against US$118 billion), but the number of synthetic products available to investors has overtaken that of physical ETPs (773 products on the market against 442).
“While the ETP industry had strong asset gathering overall, in Europe, the fortunes of physically-backed and derivative-backed products have diverged over the last three months with investors showing a preference for funds and products that purchase the underlying assets,” said Mr. Feldman.
Source: ETFWorld – Blackrock
Subscribe to Our Newsletter
