In May, the US equity market dominated global net inflows to exchange traded funds, raking in $116.1bn following April’s lackluster $69.6bn. However, there were notable inflows into niche areas like European equities, utility stocks, and high-yield bonds. High-yield bond ETFs saw a significant uptick in May, attracting $5.4bn, a sharp reversal from April’s outflow of $2.2bn. This surge in interest in high-yield bonds outpaced investment grade bond funds, a trend that is uncommon but indicative of shifting market dynamics.
While the majority of high-yield bond inflows were directed towards US markets, there has been steady buying in European markets since November, presenting an opportunity for investors. European high-yield bonds offer attractive yields of 7% and above, with cheaper spreads compared to the US market. Additionally, the European economy’s growth prospects are contributing to the appeal of European high-yield bonds, as high-yield securities tend to be closely tied to economic growth.
On the fixed income side, safety-first short-term government bond ETFs received $4.2bn of net inflows in May, signaling a preference for low-risk assets. Equities were also in demand, with global ETF flows increasing from $40.9bn in April to $69.9bn in May, driven by strong buying in the US stock market. Emerging markets and European equities also saw increased interest, continuing a trend of ongoing buying in European equity ETFs throughout the year.
Actively managed ETFs pulled in $22bn in May, marking their 50th consecutive month of inflows and the third-highest monthly total ever. This trend reflects investors’ growing interest in alpha generation and outcome-driven strategies. Conversely, thematic ETFs experienced outflows for the ninth time in the past 10 months, indicating a lack of popularity among investors. Technology ETFs globally saw their first month of outflows since June 2023, while the utility sector stood out with inflows of $854mn, attributed to investors seeking high dividend-paying sectors as bond proxies amidst rate cuts by developed market central banks.
Japanese equity ETFs experienced outflows of $6.9bn in May, the first negative month since November. This selling pressure was likely driven by profit-taking and could present buying opportunities for international investors. Despite the mixed flows data, the overall picture is one of robust activity in the ETF market, with US-listed ETFs attracting $90bn in May, the best May reading ever. The rise of actively managed ETFs and the sustained interest in European equities point to continued growth and diversification within the ETF space.
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