The amount of fresh cash feeding into equity exchange-traded funds took a steep decline over the past year, bucking the positive trend recently seen in the passive industry.
According to figures from research firm ETFGI, the amount of new money going into ETFs investing in shares plunged to $15.2bn (£11.7bn) in June this year, from the $101.9bn (£78.7bn) reported at the same time in 2015.
However, one of the biggest providers of ETFs, BlackRock, reported global flows of $24.5bn (£18.9bn) in June, more than double the level of flows seen in May, which stood at $10.7bn (£8.3bn).
The company also revealed global ETFs had reached a record-breaking level last year, hitting the $347bn (£235bn) mark in assets.
But Deborah Fuhr, managing partner of ETFGI, blamed the swift drop in new money flowing into equities on uncertainty over Brexit, interest rate changes, the US election, and Japan’s economic environment.
She said investors were instead pouring money into less-risky asset classes, such as fixed income, which had seen a 92 per cent rise in new net assets, hitting $67.7bn (£52.3bn), from the previous year’s figure of $35.5bn (£27.4bn).
Ms Fuhr also pointed out the amount of new money going into commodity ETFs had reached a record level, rising fivefold to $26.5bn (£20.4bn) from $4.2bn (£3.2bn) in the space of a year.
She also said she thought a lot of people were sitting on cash instead of putting their money into investments.
“How the ETF landscape develops depends on how and when the whole Brexit discussion starts and what happens with the US election process,” she said, adding: “There is so much happening that is hard to predict how investors are going to react.”
The fact investors would rather get their exposure through credit rather than equity suggests certain degrees of caution. Wei LiWei Li, head of investment strategy at iShares’ EMEA division, told FTAdviser she has seen a lot of flows going into gold and European fixed income in the lead up to the Brexit vote on 23 June.
She said one of the key themes was people pulling out of European equities in the first six months of the year.
“The fact investors would rather get their exposure through credit rather than equity suggests certain degrees of caution,” she said, echoing Ms Fuhr’s point about people choosing to sit on cash as well.
Pointing to the period after the referendum, Ms Li said investors felt they had some sort or clarity, - even though the outcome of the vote was not that positive for market sentiment.
“The suspense was removed for investors and they started investing in various risky exposures,” she said, adding July saw the biggest monthly inflows into iShares’ ETFs so far this year.
The investment expert said the ETF industry is at a turning point where a number of things are changing, pointing to changing monetary and fiscal policies which are pulling the markets in different directions.
“This is creating tactical opportunities that might not sit well with the long-term investment expections, and so we see investors using exploiting ETFs to trade a lot more tactically these days.”
Ms Li said a lot of the flows into ETFs are largely tactical in nature because there has been very little in the way of structural improvements to the economy, but that if this turns around there could be exposure into more “sticky” active investments.
katherine.denham@ft.com
