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A Record-Setting First Quarter for ETFs


It’s been a first quarter for the record books.

Not only did the Dow Jones Industrial Average and Standard & Poor’s 500 hit new highs, but the global exchange traded product (ETP) industry recorded its best first quarter on record. ETPs amassed $70.1 billion in flows, surpassing the previous record of $65.5 billion set in 2012.

Equities accounted for $65.1 billion, or 93%, of flows, with flows into developed markets reaching $60.5 billion. US equities attracted $37.3 billion, up 80% compared with the first quarter of last year. With fundamentals in the United States generally favorable, given strong corporate earnings and cheap equity valuations, investors moved cash from the sidelines and into equities (as opposed to talk earlier this year of a “Great Rotation” from bonds to stocks).

We also saw investors position for a possible increase in interest rates by rotating within fixed income into short-term and floating-rate ETFs. In the quarter, fixed income inflows were $11.6 billion, marking the 8th consecutive quarter with inflows of at least $10 billion. Ultra short-term, short-term and floating rate exposures accounted for $9.4 billion, or 81%, of fixed income ETP flows.

The chart below captures the exposures with high asset growth rates in the first quarter. In addition to 24% expansion for Japan equity during the quarter several other categories exhibited strong growth rates. Dividend income equity grew 20%, the homebuilder sectors grew 38%, and minimum volatility equity grew 76%. Floating Rate bonds experienced the highest asset growth rate at 83%.


Many of the first-quarter’s trends were echoed when we drilled down to March, the final month of the quarter. March ETP flows reached $23.5 billion, which was more than double the assets gathered in February. Developed market equity ETPs attracted $23.2 billion, a strong performance that almost matched the $23.6 billion witnessed in January. Of this total, 71% came from funds with US exposure and US large-cap led with flows of $8.3 billion.

But as the Cyprus bailout situation dominated headlines for much of the month, European equity exposures experienced outflows of $2.3 billion. And gold ETPs experienced a third consecutive month of outflows as investors brought money off the sidelines and shifted away from perceived safe haven assets.

With these record flows, we’re seeing investors use ETPs to quickly and nimbly reposition their portfolios to act on emerging market opportunities, even in the midst of continued macro uncertainty.

Dodd Kittsley, CFA, is the Head of Global ETP Market Trends Research for BlackRock.