BlackRock Global ETP Flows : Global flows into ETPs hit new heights in 2021, with $1.3T of inflows – 1.7x the previous record set in 2020 ($768.1B), and on par with total inflows across 2019 and 2020 combined.
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Global ETP Flows December 2021
Equity flows dominated in 2021, with a record $982.7B of inflows, vs. $423.6B in 2020. Fixed income flows inched higher for a third consecutive year to set a fresh record, with $273.4B added. Commodity ETPs registered a first year of outflows since 2018, with $2.8B of selling, including $9.9B out of gold ETPs – the largest outflows from the precious metal since 2013.
Key themes in 2021:
Equities lead the way
- 2021 was a standout year for equity ETPs, with $982.7B of inflows, including four of the top five equity inflow months on record. However, flow levels proved far from uniform throughout the year, with large inflow months often followed by a significant drop in flows in the following month.
- US-listed flows accounted for the majority of equity buying ($724.4B), but 2021 was also a record year for EMEA-listed equity ETPs, with $137.3B added. EMEA-listed equity flow trends were similar to those seen at the global level, with US exposures leading ($47.8B), and YoY flows into European equities marginally increasing. In a sign of international investors driving demand for European equities, flows into US-listed European equity ETPs outpaced flows into EMEA-listed peers, at $16.2B vs. $10.3B.
- The overall pickup in equity ETP flows was driven by increased appetite for US equities, with $568.3B of inflows in 2021 – including a record $83.5B added in December. Emerging market (EM) equities were the next most popular exposure, with inflows hitting a record $82.2B in 2021, surpassing the previous record set in 2018. In contrast to 2018, when flows overwhelmingly went into broad EM exposures, buying was relatively evenly split between broad and single country ETPs in 2021.
Rotation in fixed income
- In contrast to the bumper equity flows, the pickup in fixed income ETP buying was relatively muted in 2021, although flows into the asset class still hit new highs ($273.4B vs. $267.5B in 2020). Below the surface, there was a rotation in leadership in fixed income flows in 2021. US-listed flows increased by $1B to a record $202.3B, while EMEA-listed flows increased to $46.7B, albeit below the record $63.6B of inflows in 2019.
- Rates and inflation-linked bond ETPs led the way in fixed income flows in 2021, with $56.9B into the former (up from $31.3B in 2020) and a record $47.2B into the latter. Allocations to credit dropped off from 2020’s elevated levels, with investment grade (IG) flows falling from $64.4B in 2020 to $25.2B in 2021, and high yield (HY) flows falling from $24.2B in 2020 to $6.1B in 2021. Emerging market debt (EMD) bucked the negative trend within spread assets to post a YoY increase, with $16.5B of inflows, up from $15.1B in 2020.
- Delving deeper into credit flows, the overall drop in IG ETP buying was driven by a fall in demand for US-focused exposures. On the other hand, inflows into European-focused IG ETPs rose to a record $3.5B in 2021, while flows into global IG exposures also picked up. In HY flows, European-focused exposures notched up a second consecutive year of outflows, while US-focused HY flows remained positive, albeit at a lower level than in 2020.
Inflation on the mind
- With increased market focus on inflation, investors allocated to inflation-sensitive ETPs across 2021. Inflation-linked bond ETPs recorded $47.2B of inflows – in line with total inflows across 2015- 2020 combined. Of 2021’s total, $43.2B was allocated to US-focused ETPs, although this was also a record year for flows into eurozone linkers ($2.1B), and global linkers ($1.6B).
- Infrastructure ETPs also had a record 2021 for flows, with $9.4B added – almost 3x the previous year’s total. In sectors, energy notched up a record year of inflows, with $19.4B added, while financials – which some see as well-positioned for a rising inflation environment – registered a record $45.4B of inflows.
- However, gold – which is often perceived as a more traditional inflation hedge – had a torrid year amid the general risk-on environment, with $9.9B of outflows vs. $45.0B of inflows in 2020. This was the first year of outflows from gold ETPs since 2015, with selling across listing regions.
Shifting trends in sectors and factors
- Sector flow trends shifted over the course of 2021: cyclically-tilted and manufacturing-tilted sectors led the way in Q1, but momentum petered out as the restart peaked and investors tilted to quality sectors towards the end of 2021. This left tech as the most popular sector for the second year in a row, with a record $49.8B of inflows, while healthcare also notched up a record $15.9B.
- The cyclical side of the barbell didn’t completely unwind though, with the change in sector leadership representing a tilt to quality rather than a rotation. As a result, financials ended 2021 as the second most popular sector, recording $45.4B of inflows after being neck and neck with tech for most of the year (see chart). Energy and materials flows also remained solid. Investors started to sell industrials ETPs, however, with $0.5B of outflows for the year, after $9.4B was added in 2020.
- The tilt towards quality was also prevalent in factor trends, with buying of quality factor ETPs in Q4 bringing net inflows to $7.6B for the year. Value ETPs recorded $2.7B of selling in December – their largest outflow month on record – yet value remained the most popular factor in 2021, with $21.6B of inflows. Investors sold minimum volatility ETPs for a second consecutive year, with $14.9B of outflows in 2021, after $16.4B of selling in 2020.
A record year for sustainable
- 2021 was another record year for sustainable flows, with combined inflows across US and EMEA-listed ETPs reaching $135.4B – a 62% increase from 2020 and more than 4x the sustainable flows of 2019. Notably, over 70% of 2021’s sustainable flows were generated in EMEA (see chart).
- The record-breaking flows of Q4 2020 continued through the start of 2021 with US and EMEA-listed ETPs seeing over $46B of inflows in Q1 2021. January and February in particular were record months for EMEA products, with $10.3B and $14.7B in net inflows, respectively. Sustainable flows in the US peaked at $7B in January, and remained fairly consistent for the rest of the year, with an average of $3B of net inflows per month, led by ESG-optimised and environment-based strategies.
- In EMEA, flows tempered slightly in Q2, with an average of c.$5B per month from April to June. Momentum picked up significantly in July, with $9B of net inflows for the month. Flows increased even more in Q4, finishing the year $12B of inflows in December alone. EMEA flows were consistently led by ESG best-in-class strategies throughout the year, followed by ESG optimised / tilt strategies.
Source: ETFWorld.co.uk
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