What a difference a month makes. Investors shifted gears in July, showing a strong appetite for global exchange traded products as the stock market surged to new highs.
The cautious sentiment we saw in June was short-lived as the growth of the ETP industry continued its forward march. Year-to-date flows into global ETPs climbed to $143.3 billion by July 31. After June’s setback when investors pulled money from ETPs, flows have now vaulted back ahead of 2012’s record pace of $128.3 billion at this stage of the year.
Global ETP inflows for July hit $44.1 billion, the strongest month since September 2012. Of note, equity flows set a new 2013 monthly high of $39.3 billion, with investors gravitating to US equities. US sector fund flows swelled to $6.2 billion, a monthly tally not seen since 2008; flows were stronger in more economically-sensitive sectors, like financials and technology, than traditional defensive industries.
The about-face from June came as investors appeared more at ease with the outlook for the economy and interest rates. Better-than-expected corporate earnings for the second quarter and more soothing comments from Fed Chairman Ben Bernanke about the pace of the government’s bond buying programs helped the S&P 500 notch its largest monthly jump since January. The index gained 5% in July and touched a fresh high.
With more clarity from Bernanke, global fixed-income ETP flows improved to $6.4 billion in July following June’s $8.4 billion in outflows. Investors did show some risk appetite: High yield bond ETPs raked in $2.6 billion of flows during the month – the most since Feb. 2012.
In other developments, investors dipped their toes into emerging market equities, which posted the first month of inflows (at $515 million) since January, and continued their stampede out of gold. Backed by “Abenomics,” Japan ETP flows remained strong, with another $2.0 billion collected in July, bringing year-to-date flows to $28.0 billion.
With the S&P 500 recently topping 1,700 for the first time ever, we will see what August brings. What July showed was the resilience of ETPs after June’s pullback.
Dodd Kittsley, CFA, is the Head of Global ETP Market Trends Research for BlackRock.