First, we would expect that US large and mega cap equity ETPs, which are generally less sensitive to domestic growth, could garner favor with investors. But small and mid cap stocks have historically been the most exposed to domestic growth, and these ETP categories could be vulnerable.
Second, international markets could garner favor with investors. In December, emerging market equity ETP flows hit a new monthly high of $13.1bn, and we saw broad emerging markets ETPs end the year on a seven-month inflow streak. With Russ expecting slower US growth and more volatility in the near-term, segments of the international market most levered to global growth such as emerging markets, smaller developed countries and peripheral European exporters could benefit from the current environment.
Third, with the Federal Reserve expected to keep interest rates low for quite some time, we expect to see continued flows into higher yielding fixed income categories. This also means a continued aversion to US Treasuries, as even a modest increase in yields would have a significantly negative impact on Treasury prices.
And in the early days of 2013, it appears that investors are reversing their stance on high dividend ETPs. In contrast to the outflows seen in December, $647 million has flowed into these funds through January 10th.
Dodd Kittsley, CFA, is the Head of Global ETP Market Trends Research for BlackRock.