Adding fuel to the great rotation debate, February inflows of $10.6bn into equity exchange traded products (ETPs) ensured the strongest 2-month start on record for the category ($47.1bn year-to-date).
But a closer look at flows suggests less of a great rotation from bonds to stocks, and more of a “duration rotation” within the fixed income category.
In fact, compared with January’s record ETP flows and risk-on behavior, investors in February seemed to be more focused on fine-tuning portfolios in anticipation of policy shifts and future rising interest rates.
Within equities, developed market equity ETPs led the charge in February, gathering $13.0bn, including $7.3bn in non-US exposures.
Investors’ continued appetite for yield was evident in dividend, real estate and preferred stock ETP inflows, which gathered $1.6bn, $1.5bn and $0.7bn respectively.
Dividend ETPs have made a significant comeback after stalling in the last quarter of 2012, when negotiations over the US fiscal cliff placed tax treatment of dividends in limbo (see below).
Another significant theme in February equity flows was the surge of interest in low or minimum volatility ETPs. The category attracted average monthly flows of $926mn for the first two months of 2013 – more than double the average monthly flows of $416mn in 2012.