ETF Investors Positive on Emerging Markets

LOW COST FUNDS: Sentiment among ETF investors towards emerging market equities is positive for the first time since October, as global ETF sales top $33.5 billion

Emma Wall 9 May, 2014 | 12:20PM
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Emerging markets have been shunned by investors over the past year, put off by volatile markets and poor returns. Rallying developed market indices provided a welcome distraction from slowing Chinese growth and the Fragile Five. But the tide has turned. In the first three months of this year, US equities – the market that outperformed all others in 2013 – have disappointed.

This has forced investors to broaden their horizons, and they are switching their focus back to emerging markets. According to the latest monthly global ETF flows data from Blackrock, emerging market equities gathered $5.9 billion in April, the first positive month since October.

Frontier markets equity ETFs also saw inflows of £200 million, doubling the year-to-date total inflows. Emerging market fixed income ETFs also proved popular, selling $1.3 billion, the most successful month since October 2012.

“Although investors should tread carefully as this is a very volatile category, the momentum has been impressive. The MSCI Frontier Markets 100 Index continues to push higher, up 11% this year following a 21% increase in 2013,” said an iShares analyst.

Two frontier markets that have proved particularly popular are Qatar and the United Arab Emirates. These two markets are due to be upgraded from frontier markets to emerging markets in the next MSCI index rebalance this month. In June 2013, MSCI announced plans to upgrade both Qatar and the UAE to emerging market status, at the time HSBC estimated inclusion in MSCI’s Emerging Market Index could attract $800 million of new inflows into the two countries’ markets as more risk-averse investors start to consider them.

Frontier market inflows are now $300 million so far this year, impressive consider the sector is only valued at three times that amount.

Last year US equity ETFs managed inflows of $35.7 billion, and despite a disappointing start to this year, investors remain positive on the market, keeping pace with 2013 inflows. So far this year, inflows have totalled $14.5 billion. In the month of April, global investors poured $4.4 billion into US sector ETFs, with a particular focus on energy, utilities and industrials.

 In total last month iShares calculated that $33.5 billion was invested into ETFs last month across the globe, the most successful April on record. 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Emma Wall  is former Senior International Editor for Morningstar

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