What the Flows Show: July Was No June

ETF Database

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 [see also How to Pick The Right ETF Every Time.

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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 [see Visual History Of The S&P 500].

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.

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Dodd Kittsley, CFA, is the Head of Global ETP Market Trends Research for BlackRock and a regulator contributor to the The Blog. You can find more of his posts here.

Sources: Blackrock ETP Research and Bloomberg

 

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