The listed equity (ETF) industry has had a turbulent first quarter

ETFAfter a record start in February came a bitter experience. In March, the industry has recovered some, with global inflows of just under 18 billion US dollars, the month February lags behind the more than 100 billion in January.

On March itself was also marked on the weekly view of a wide fluctuation range. As the statistics from iShares and the Bank of America Merrill Lynch (BofAML) show, record sums of more than $ 40 billion in stock ETFs flowed in mid-March. Just a week later, investors on a large scale withdrew funds from these ETFs . As a result, ETFs on US equities, at nearly $ 25 billion, experienced the second largest weekly outflow in their history.

A similar record was set by ETFs on European equities during the last week of March. Outflows during the period were $ 3.4 billion. An even stronger weekly outflow of this asset class was recorded only at the height of the financial crisis in April 2012.

DIFFERENT FACTORS HAVE DRIVEN VOLATILITY

The question remains, what has driven the investors so recently. The experts are more or less in agreement on the reasons: “Recently, some of the leading indicators in Europe have indicated a slowdown in growth,” says iShares’s Christian guest to AWP. “But also the election outcome in Italy and, above all, concern about the consequences of increasing protectionism have just added to the European ETFs last,” continues Head iShares and Index Investing at BlackRock Switzerland.

For Nima Pouyan, head of Invesco Power Shares Switzerland, the discussions about import tariffs are particularly close to the fact that the increased volatility has in some cases added so much to the ETFs on EU equities. Since both the EU and within the EU Germany are very export-oriented, it would have hit this region particularly clearly, the expert told AWP.

REVISION OF THE RISKS

As Marlène Hassine Konqui points out to AWP, the heightened volatility on the markets is accompanied by a reassessment of risks. The head of Lyxor ETF Research sees this revaluation particularly clearly in the area of ​​Fixed Income (FI).

Especially in March, ETFs on government and US Treasuries with short maturities recorded significant inflows. This is probably due to the fact that they are less affected by fluctuations in interest rate expectations.
At the same time, fixed income high yield (ETY) and investment grade (ETF) ETFs have seen new outflows. This trend has been going on for months in these asset classes and is explained above all by the US Federal Reserve’s interest rate policy, which is continuing on its course of gradual normalization.

JAPAN FURTHER DEMANDED

With all the drains, there were also bright spots in March. For example, ETFs on Japanese stocks continued their strong run. A good earnings performance, together with the still intact outlook for global economic growth, had a supportive effect, says iShares guest, summarizing the trend.

ETFs on emerging market equities are also in high demand. As can be seen from the statistics, they have recorded inflows so far this year, with the exception of two weeks. Experts like Konqui of Lyxor see this as the possible beginning of a monetary crossroads between developed and emerging markets. Because countries like Brazil and Russia are still in the process of interest rate cuts.

And yet another asset class has increasingly been the focus in the first quarter: gold. Some voices talk about an erratic run of inflows and outflows on gold ETFs. A strong week was usually followed by a significant outflow. As ETF Securities analyst Aneeka Gupta observes, gold ETFs have been in greater demand recently, especially in the context of tense trade relations.
Overall, the experts see the strength of the industry but also underpinned in the current market environment. “Particularly in volatile phases, we see investors increasingly turning to ETFs in order to be able to act flexibly and tactically in the market,” explains Sven Württemberger, Head of Sales Passive Investments Switzerland at Deutsche AM.

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