ETFs continues to be attractive for investors

PUBLISHED : Sunday, 23 September, 2012, 12:00am
UPDATED : Sunday, 23 September, 2012, 10:22am

The growth story of Exchange Traded Funds (ETFs) continues in the second half of the year, as wealthy investors turn to this investment instrument after a volatile first half for equities.

The numbers available from BlackRock for last month show that despite lower overall trading volumes, the global exchange-traded product (ETP) industry attracted net inflows of US$12.1 billion, more than double the US$5.3 billion collected in August last year.

ETP investors positioned for some combination of volatility and monetary easing through the purchase of gold and ETPs, while displaying continued appetite for income-focused products in the Fixed Income and equity categories.

The BlackRock report showed that flows into gold ETPs surged to the highest level this year, adding US$3.6 billion with Europe and United States-listed funds attracting solid interest.

Gold - more than any other commodity - is a natural beneficiary of the present monetary regime characterised by negative real interest rates. Since 2010, gold's correlation to the S&P 500 has been 0.06, remarkably low in an environment of highly correlated traditional assets.

Global ETP gold holdings now stand at 2,485 tonnes, recently surpassing holdings by Italy's central bank. ETP gold holdings are the fourth-largest behind central banks in the US, Germany and the International Monetary Fund.

ETPs saw an uptick in investor interest, gathering US$1 billion last month, indicating investor sentiment that market volatility could increase. ETPs in this category seek to deliver returns that correlate to measures of market volatility, fund managers say.

Net flows of US$6.5 billion into Fixed Income ETPs displayed breadth and accounted for more than 50 per cent of total industry inflows.

All major fixed income categories attracted net inflows led by investment-grade corporate with US$1.6 billion and high yield corporate with US$1.3 billion. Fixed income ETPs have attracted 36 per cent of all industry inflows this year, with US$50.8 billion this year to date, already surpassing last year's record inflows of US$49.9 billion.

The BlackRock report says that equity income strategies remain a guiding beacon for ETP investors with high-dividend yield, real estate and preferred stock ETPs pulling in a combined US$2 billion last month.

ETPs listed in Europe gathered solid inflows of US$4.4 billion - the highest monthly total since July 2011. European-listed products have attracted US$13.2 billion since April, accounting for most of the US$15.4 billion in year-to-date flows for the region.

Emerging markets equity ETPs drew in US$2.8 billion. Single country funds gathered the largest portion, attracting US$1.5 billion.

Uncertainty about China's growth did not impede flows into China country-level ETPs which gathered US$1.2 billion last month on the back of US$1.4 billion in July and US$8.1 billion year-to-date.

ETPs offering exposure to South Korea posted a fourth month of solid inflows with US$0.7 billion last month and US$1.8 billion in the year-to-date.