ETFs
US stocks account for half of global ETF flows in May
The all-powerful US stock market took the lion’s share of the $116.1 billion in global net inflows to exchange-traded funds in May, as the sector rebounded from the $69.6 billion “muted” purchases in April.
However, as the tectonic plates of monetary policy and market dynamics were slowly shifting, there were notable flows into some relatively specialized sectors such as European equities, utility stocks and bond bonds. high efficiency.
High-yield bond ETFs generated $5.4 billion in new money in May, according to BlackRock data, their strongest month since November and a stark reversal from the $2.2 billion they had bled in April.
Flows into junk bond ETFs even surpassed the $5.1 billion sucked into investment-grade bond funds, which had only happened once in the previous 12 months.
“It’s rare that high yield is a bigger share than investment grade,” said Karim Chedid, head of investment strategy for iShares in the Emea region at BlackRock.
The majority of that money has been directed into US high-yield securities, but Chedid noted that the European market had seen consistent buying since November and believed that was where the real opportunity now lay.
“We see relative value in high yield on the European side,” he said, with yields above 7 percent. “Spreads are trading cheaper [than in the US] even if the quality of the universe is higher.
Chedid also welcomed the “green shoots we are seeing in the European economy,” given that “high efficiency tends to be closely linked to growth.”
That said, not all bond investors were as enthusiastic about jumping into the more speculative world of the bond universe.
Safety-focused short-term government bond ETFs, defined as those with durations of up to three years, absorbed $4.2 billion in net inflows in May, surpassing $3.1 billion billion seen in April, which itself followed $15.2 billion in outflows between November 2023 and March.
Stocks were also in high demand, with global ETF flows increasing from $40.9 billion in April to $69.9 billion in May, according to BlackRock.
As is usually the case, the U.S. stock market absorbed the vast majority of the money with net purchases of $55.7 billion in May, a sharp rebound from the bland $18.1 billion in May. april.
But emerging markets also saw demand, attracting $3.9 billion, up from $1.4 billion in April. European stocks took in $2.4 billion, and while that was down from April’s $3.1 billion, Chedid believes it’s part of a continuing longer-term trend.
“This continued the trend of purchases of European equity ETFs since the start of the year,” which now reach $10 billion, a quarter of which comes from American investors, which has not been common in recent years. recent years, Chedid said.
Matthew Bartolini, head of SPDR Americas research at State Street Global Advisors, cited “favorable earnings and economic momentum trends” in Europe as “a likely catalyst for the recent sentiment turnaround,” which has led to four months consecutive purchases of European equity ETFs. by American investors.
Chedid envisioned a continuation of this trend. “We think it’s possible to go further,” he said. “We think [European equity ETFs] are under-detained. The total amount paid to them this year only reverses the capital outflows we saw last year. Total assets under management are still $11 billion away from the peak set in April 2022, he said.
Despite this, Scott Chronert, global head of ETF research at Citi, which focuses on U.S.-listed ETFs, noted that emerging markets attracted more money than non-U.S. developed markets in May, despite lower performance.
In total, net inflows to U.S.-listed ETFs reached $90 billion in May, according to Bartolini. It was the best May result on record and the ninth highest monthly total, it added.
As part of this, actively managed ETFs generated $22 billion, their 50th consecutive month of inflows and the third highest monthly total on record, according to Bartolini.
“As investors continue to leverage a new vehicle for alpha generation and results-driven strategies, active ETFs have now taken in more than $108 billion for the year, or 33% of the total. [US-listed] ETFs are circulating,” he added. “This pace is unlike anything we’ve seen.”
In contrast, U.S. investors bought back money in thematic ETFs for the ninth time in the last 10 months. As a result, thematics have now caught up with ETFs that follow an environmental, social and governance (ESG)-based mandate amid unpopularity, with both having disclosed $12 billion over the past two years.
Globally, technology ETFs saw their first month of outflows since June 2023, but the more muted utilities sector shined, with inflows of $854 million, the highest figure since September 2022 Chedid believed that some investors were, once again, beginning to take an interest in the traditionally high dividend. – the paying sector as a bond indicator, with key interest rates in developed markets finally starting to be reduced.
“Utilities are interesting considering the European Central Bank started cutting rates on Thursday, the Bank of Canada on Wednesday, so the [developed market] The rate reduction cycle has begun. This means that sectors considered bond proxies can be interesting,” said Chedid, who also put infrastructure in this category.
The flow data was not universally optimistic, however, with Japanese stock ETFs losing $6.9 billion, their first negative month since November.
Selling was led by ETFs listed in the Asia-Pacific region, likely Japanese domestic funds, although BlackRock data is not granular enough to know for sure.
Chedid attributed this to profit-taking and predicted continued buying by international investors with, for example, European portfolios currently under-allocated to Japanese stocks, which represent 3.6 percent of the average stock allocation, below Japan’s 5.4 percent weighting in the MSCI All Country Index. Global index.