Global ETFs gathered $36.1bn in March to lift Q1 flows to $97.2bn, nearly triple the total from Q1 2014. The figures came largely from investor demand for non- U.S. equities, whereas the all-time high of $138.0bn from Q4 2014 was concentrated in U.S. equities. This demonstrates the ability of the ETP industry to respond quickly to changing market conditions while maintaining strong growth. Only one other quarter outside of the past two has ever topped asset gathering of $100bn, showed BlackRock ETP Research.
March was driven by accelerating non-U.S. developed markets equity flows of $32.6bn, nearly as much as the prior two months combined. Year-to-date flows of $71.0bn have almost reached the full-year total from 2014, spurred on by attractive valuations in Europe and Japan relative to the U.S. The divergence of increasingly accommodative ECB and Bank of Japan monetary policy with that of the Fed has also been a key factor.
Flows for Europe and Japan, as well as broad developed markets (EAFE), have benefitted significantly from currency-hedged equity funds, which had a record month gathering $13.4bn. This trend is expected to persist. The consensus is the U.S. dollar is in the midst of a strengthening cycle and these cycles have historically lasted for six to seven years.
Europe equity established a new monthly high of $14.8bn. While pan-European equities led with $13.4bn, German equities added $1.4bn and have already captured $4.8bn year-to-date.
“Investors recognized attractive valuations in European equities following the announcement of the European Central Bank’s ambitious quantitative easing program, adding $36.5bn into pan-European ETFs in Q1. European-listed ETFs are close to reaching $500bn in assets, as investors from Europe, Asia and Latin America added $34.2bn of new flows in Q1, the best quarter ever for the European ETF industry”, said Amy Belew, global head of ETP research at BlackRock.
Japan equity brought in $8.3bn, the second highest monthly total ever. Flows were diversified across Japan-, U.S.- and Europe-listed funds. Japanese stocks retain upside even as the Nikkei 225 index approaches its highest level in 15 years. Corporate governance reforms have shown progress and pensions have announced further reallocation of assets to equities.
U.S. equity flows improved by $6.2bn in March, helped by the Fed indicating after its March meeting that though rates may soon rise, the pace could be slower than previously expected. It was the second consecutive month of inflows, but year-to-date redemptions are still ($8.4bn) due to the impact of large cap weakness during January.
Emerging markets equity outflows resumed, hitting ($7.3bn) after stabilizing briefly in February. Broad EM equity and China equity redemptions overwhelmed a thirteenth consecutive month of India equity inflows.
Fixed income flows stayed ahead of record pace for the year, but slowed to $4.3bn in March. Appetite for European fixed income remained healthy as the ECB began the bond buying program announced in January. Flows totaled $3.6bn across sovereign as well as high yield and investment grade corporate bonds.
U.S. fixed income, however, had modest outflows of ($0.2bn). Investment grade corporate and broad U.S. funds each gathered $1.1bn, but high yield corporate momentum from recent months stalled and U.S. Treasuries experienced outflows of ($3.2bn).