Global ETF flows on course to soar past previous records

Global inflows into exchange traded funds are on course to surge to new record highs this year, as market volatility and a summer lull failed to damp buying in August.

Investors poured a net $129.7bn into ETFs in August, according to data from BlackRock.

This was below July’s record high of $198bn but still above 2024’s monthly average, despite August traditionally being a quiet month for fund flows and despite market ructions at the beginning of the month, when the S&P 500 stock index plunged 6 per cent in three trading days.

Net inflows for the first eight months of the year now stand at $969bn, comfortably ahead of the $848bn at this stage of the year in 2021, when the record full-year tally of $1.3tn was chalked up.

“There was somewhat of a summer lull in August so we did see a drop-down [in flows] globally compared to July,” said Karim Chedid, head of investment strategy for BlackRock’s iShares arm in the Emea region.

“But in equities we have continued to see buying in defensive sectors [and in fixed income] we have continued to see significant flows to duration exposures,” Chedid said.

Syl Flood, senior product manager at Morningstar, said that “markets, despite recent hiccups, are firing on all cylinders”, while the prospect of rate cuts is generating “pretty significant flows” to fixed income.  

“Even though it was a turbulent month in the market it was business as usual for ETFs,” Flood added. “[Asset flows] are so dominated by passive and automatic investing [such as monthly pension plan payments] that it’s hard to move that mountain in terms of flows.”

Flood also argued that investors no longer seemed to respond “en masse” to market dislocations, as long as there was no “terrible global calamity, like Covid, or a bigger war” behind the sell-off. “That’s what it would take for people to head to the exits,” he said.

Matthew Bartolini, head of SPDR Americas research at State Street Global Advisors, who focuses purely on US-domiciled ETFs, said that despite net outflows on two days in early August, full-month flows of $73bn in the US were more than twice the August average.

Reinforcing this, global flows to Japanese equity ETFs hit $2.5bn in August, according to BlackRock, following three months of outflows (which totalled $8.7bn), despite Tokyo being the epicentre of the recent volatility, something Chedid attributed to a “buy on the dip” mentality.

Fixed income ETF flows have been particularly strong in relative terms this year, with year-to-date flows of $288bn well ahead of the $195bn at this point in the record year of 2021, according to BlackRock.

Chedid noted that monthly flows have been trending upwards this year, something he attributed to rising expectations of central bank easing.

However, Flood believed much of the buying was the result of forced rebalancing by entities cleaving to a 60/40 equity/bond model, or something similar.

“As equities surge, [the likes of] model portfolios have to pull money out of equities to rebalance to fixed income,” he said.

Despite the size of the overall ETF flows, an element of risk-off remains. Although technology was, as usual, the most popular equity sector, Chedid said “we have continued to see buying in defensive sectors, in financials and utilities”.

In fixed income, government bond ETFs, the lowest risk category, sucked in $18.7bn, while investment grade corporate bond funds took in $7.9bn with high-yield bond ETFs just $0.8bn.

With demand for emerging market debt also weak, Chedid said this was “consistent with the broader unwillingness we’ve seen among investors to take persistent risk in fixed income this year”.

Demand for ETFs investing in gold, a traditional safe haven, has also picked up following a lengthy period during which ETF investors withdrew money, despite the gold price hitting record highs.

Attitudes towards emerging markets in general and China in particular diverged sharply in August, though.

Looking at US-domiciled ETFs, Bartolini said investors withdrew a net $700mn from EM equity ETFs, with China ETFs shipping $1.3bn. Over the past three months China-focused ETFs have seen $4bn of outflows, the worst three-month run for 15 years, he added.

In contrast, BlackRock’s global ETF data points to $22bn of net inflows into EM equity ETFs in August.

BlackRock does not provide a country-by-country breakdown but, given the size of this divergence, it is highly likely that much of this $22bn was driven by China-listed ETFs investing in their domestic market.

Elsewhere, JPMorgan chalked up record monthly flows of $1.7bn for its Ireland-domiciled ETF range in August, according to Morningstar, led by the actively managed JPMorgan Global Research Enhanced Index Equity (ESG) Ucits ETF (JREG) with $653mn and the sister US-focused fund (JREU) with $638mn.

The $32bn JPM Ireland has now seen one-year flows of $13bn and has had a trailing 12-month organic growth rate of 102 per cent, Flood said.

This far outstrips the equivalent growth rate of 35 per cent for JPM’s US ETF range, which itself “is far greater than any of the other top-10 providers”, he added.

In comparison, Vanguard has a trailing 12-month global organic growth rate of 11.6 per cent for its ETF range, according to Morningstar, iShares 9.4 per cent and SSGA just 1.7 per cent.