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Equity ETF inflows accelerate to record high

Some $64.8bn (€61.1bn) flowed into global ETPs in March, propelling year-to-date flows to an eye-dazzling $189bn, “marking several records”, Blackrock said. First-quarter inflows were about 2.5 times higher than in 2016.

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The bulk of the inflows were dedicated to developed market equities, both in Europe and globally. European equity ETFs saw $4.1bn in net inflows in March, with US investors finally “following European investors into Europe”, as economic prospects on the ‘old continent’ are finally brightening up. Blackrock notes that, before the recent revival, US investors had withdrawn $39bn from European equity ETFs between December 2015 and January 2017, “a reduction in the total asset base of 45%”. 

Active flows also pick up

ETFs may have been seeing record-breaking inflows, but this does not mean active managers are being wiped out. To the contrary: there are no data yet about first-quarter flows into active funds, but figures released by Morningstar covering the first two months of the year suggest active funds have also seen large net inflows, especially in fixed income but also in equities.  

The mere force of passive and active flows suggests passive investors may well be a major driving force behind the equity rally this year, propping up demanding valuations.

The investor bullishness resembles the optimism that’s generally felt across the economy, especially in the US but increasingly also in Europe. Raising equity exposure as ETF investors have been doing therefore seems like a sensible thing to do.

“Rising business and consumer confidence supports a broad-based, synchronised global economic recovery which reinforces our pro-equity stance,” said Lucal Paolini, chief strategist at Pictet Asset Management.

“But his optimism, however, comes with a couple of caveats,” he added. “First, consumer and corporate confidence readings, particularly in the US, are so strong that there is the risk expectations will be disappointed. Second, it would be dangerous to ignore political risks, especially those surrounding the French Presidential election.”

Part of the Bonhill Group.