Developed Market Equity Demand Fuels Record Quarterly ETF Inflows

April 5th at 1:00pm by Tom Lydon

The exchange traded fund industry attracted new record inflows over the first quarter as investors flocked to developed market equities.

The global exchange traded product industry, which include both ETFs and exchange traded notes, saw $70.1 billion in new inflows, compared to the previous quarterly record of $65.5 billion last year, according to a BlackRock research note. [Record Inflow for ETFs Despite Selling in Largest Stock, Gold Funds]

With confidences in the stock market returning, equity funds brought in $65.1 billion, or 93% of the first quarter inflows, driven by funds with U.S. exposure, which accounted for $37.3 billion. Broad-based developed markets exposure added $11.2 billion, with Japan equity attracting $8 billion.

Meanwhile, emerging market equity interest slowed but still saw a positive $4.6 billion due to a shift in investor sentiment.

According to BlackRock, asset categories with the highest growth rates include Japan equity, which added 24%, dividend income equity, which was up 20%, homebuilders, which grew 38%, minimum volatility equity, which expanded 76%, and floating rate bonds, which rose 83%.

“The wide variety of unique exposures that ETPs offer, from Japanese equities to short-term fixed income and minimum volatility, has been a crucial factor in the industry’s strong ongoing growth,” Dodd Kittsley, Global Head of ETP Research at BlackRock, said in the research note. “Flows through the first quarter reflect how ETP investors can reposition their portfolios to act on market opportunities that they see emerging, even in the midst of continued macro uncertainty.”

Fixed-income assets still attracted their fair share of interest, adding $11.6 billion over the first three months, the 8th consecutive quarter of inflows of at least $10 billion. However, ultra short-term, short-term and floating rate exposures garnered the lions share at $9.4 billion as investors sought a hedge to interest rate risk.

“Rather than the much-discussed ‘great rotation’ from bonds into equities, the first quarter showed investors moving cash from the sidelines into equities, and preparing for a rise in interest rates by rotating within fixed income into short-term and floating-rate ETFs,” Russ Koesterich, BlackRock Global Chief Investment Strategist, said in the note.

Commodities, though, saw significant outflows of $9.2 billion, particularly out of gold related assets.

Globally, there were 4,806 ETPs at the end of the first quarter, with a record $2.08 billion in assets under management.

Meanwhile, bringing in $56.1 billion year-to-date, developed equity mutual fund flows still lag behind developed equity ETPs, compared to the $60.5 billion for ETPs. Emerging market equity flows for mutual funds, though, rose to $25.0 billion and fixed-income mutual funds brought in $79 billion, outpacing ETPs.

For more information on ETF fund flows, visit our ETF performance reports category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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