ETF flows following Brexit show appetite for safety

European investors pulled large amounts of money out of equities exchange-traded funds following the UK’s shock decision to leave the EU on June 24. According to data compiled by Amundi, Japanese and European equities ETFs were worst hit, registering outflows of €1.2 billion and €1 billion respectively. Although the European equities market has seen volatility for most of this year, the referendum acted as a catalyst for those seeking safe havens. European investors moved into US equities following the June 24 result, with €1.6 billion of inflows. Although valuations are high in the US equities market, it is seen as less volatile and to compound this, minimum volatility smart beta ETFs enjoyed inflows of €1.2 billion. Emerging market equities ETFs, enjoying somewhat of a resurgence since Brexit, saw inflows of €1.5 billion while there was also an appetite for emerging market government debt. This asset class saw inflows of €2 billion. Fixed income ETFs have enjoyed a good year thus far and this continued after the Brexit vote as investors piled into these safe assets. European corporate debt ETFs saw €852.2 million in inflows while its US counterpart had inflows of €786.1 million. Despite extremely low yields, with many countries bonds straying into negatively territory, European government bond ETFs saw inflows of €506.7 million, albeit only those with long durations. Mid duration European sovereign bond ETFs saw outflows of almost €300 million. Post-Brexit, investors are clearly looking for safety as well as some yield, illustrated by the inflows into emerging market debt. With heightened market volatility, it was unsurprising that smart beta ETFs that use min vol as a factor also enjoyed inflows. ©2016 funds europe

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