Emerging market stock- and bond-related exchange traded funds are experiencing robust inflows as the lingering global easy-money environment is drawing more investors to riskier assets in search of higher returns.
Emerging market bond funds are experiencing the largest inflows on record as pension funds, sovereign wealth funds and other big institutions joined the search for riskier asset classes, reports Jonathan Wheatley for the Financial Times.
Related: Emerging Markets are Hot for Bond ETF Investors
“This is capitulation,” Sergio Trigo Paz, head of EM fixed income portfolio management at BlackRock, told the Financial Times. “The big, big investors are starting to move.”
According to EPFR data, emerging market bond funds experienced two record weeks of flows.
Equity emerging market funds are taking in their fair share as well. According to the Institute of International Finance data over the past week, cross-border flows to emerging market stocks and bonds hit their highest level since the Federal Reserve pulled back from rising rates in September 2013.
In U.S. markets, the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), which tracks the benchmark MSCI Emerging Markets Index, was the most popular U.S.-listed ETF of the past week, attracting $2.4 billion in net inflows, according to ETF.com. Additionally, among the top 10 ETFs by asset inflows for the past week, the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) added $718.7 million and the iShares J.P. Morgan USD Emerging Markets Bond ETF (NYSEArca: EMB) attracted $405.8 million.
Related: Tap into Global Growth with Emerging Market ETFs
So far this year, emerging market bond ETFs have experienced $3.8 billion in net inflows, or more than two-and-a-half times the amount for the same period last year. EMB, alone, brought in $1.5 billion in the first two weeks of July after the United Kingdom’s so-called Brexit vote to leave the European Union.
[related_stories]“People are looking for beta [returns from the asset class rather than individual assets],” Trigo Paz said. “They are just buying the index now and leaving fine-tuning until later.”
Enticing greater investment dollars, economic fundamentals and idiosyncratic risks in the emerging markets are improving, such as rising oil and commodity prices that are supporting major emerging economies, like Brazil and Russia. Additionally, concerns over China downturn, which drove bearish positions last year, have diminished.
“The fundamental rationale box is ticked,” Trigo Paz added.
Meanwhile, central banks are more likely to maintain loose monetary policies in a post-Brexit world, fueling the ongoing search for yield in a low-rate environment. The Fed has kept its rate decision on hold, and the Bank of England, European Central Bank and Bank of Japan are even considering additional measures to prop up flagging growth.