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ETFs surged in July, but will it continue?

Fixed income ETF product purchases jumped 10-fold

New data from Blackrock suggests that investment grade corporate bond ETFs saw a boost in July when purchases of fixed income ETF products jumped from $3.2bn to $32.5bn.

As reported in the FT, this was largely due to a pick-up in credit ETF buying that ended up totalling $13.8bn. This, said the publication, more than recouped the outflows of $9.9bn as seen in June.

The paper wrote: “Investment grade credit vehicles accounted for the lion’s share of inflows, taking in $9.9bn in July. European-focused investment grade ETFs stood out, with the $2.2bn in net new cash they attracted in July the highest monthly inflow since April 2020, when markets started to recover from the initial pandemic shock.”

This all seems to be a segment getting back on track, given that Refinitiv Lipper found that May saw an estimated €2.5bn of net inflows recorded during the month and despite AUM eroding by €13.2bn. According to its report then, the European ETF industry enjoyed healthy estimated net inflows for May, which were far below the rolling 12-month average (€11.5bn).

According to the latest Blackrock data, flows towards high-yield and investment-grade bond ETPs were entirely negative in January, and have since inched steadily upwards. Investment-grade ETP flows were positive in February, March, April, and May of this year, before going negative in June. High yield ETPs flows have been only positive in May and July.

Blackrock said that this was a reversal of the inconsistent flows in the segment this year.

A reason for this recent rally may lie in the fact that fears seem to have been allayed over Russia’s strangulation of gas supplies to Europe in recent weeks.

As the website ETF Trends reported in the middle of July: “European markets rallied […] to a more than five-week high, with Germany country-specific exchange traded funds leading the charge, as Russia restarted gas flows to Europe through the Nord Stream 1 pipeline, assuaging market fears of a potential energy crisis that would send the region into a recession.”

It added: “The Nord Stream 1 pipeline, which makes up over a third of Russia’s natural gas exports to the European Union, could resume operations on Thursday but at less than its original capacity of some 160 million cubic meters per day, Reuters reported. The sources who told Reuters this helped mitigate concerns from earlier on Tuesday after European budget commissioner Johannes Hahn stated that the European Commission did not expect the pipeline to restart after the scheduled maintenance.”

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