Asia Pacific equity exchange-traded funds (ETFs) were particularly popular with European investors in June, according to Lyxor ETF Research, as “perceived valuation opportunities” drew strong inflows.
European-listed ETFs in this geographic category attracted €866m during the month of June, higher than the previous month’s reading, making them the third most popular equity category.
Emerging market equity ETFs also continued to see strong demand, with investors pouring some €1.4bn into this area, with flows focused almost exclusively on broad-based rather than single country exposures.
TrackInsight data shows that Asia Pacific stock ETFs have brought in €1.9bn in total this year-to-date, and have continued to attract inflows despite faltering performance over the last month to 13 July.
So far this year, Asia Pacific stock markets have done well, while ETFs in the Asia Pacific category are up around 6% on average over the period, according to TrackInsight. Meanwhile, in the first half of the year, the MSCI Asia Pacific index rose 18.3% – the biggest rise in any first half since 2009, according to the New York Times.
Investors are turning to Asia in their search for better equity valuations as US stocks shows signs of overheating after an eight-year bull run.
According to Bill Maldonado, CIO Asia-Pacific at HSBC Global Asset Management, Asia is the most attractive region in terms of valuations, while improving earnings and more efficient use of cash is allowing companies to have strong balance sheets and increase returns on equity.
The MSCI AC Asia index is trading at far lower valuations than its global counterparts, sitting at 13.5 times forward earnings as of May, compared to 16.6 times for the MSCI World and 17.9 times for MSCI USA.
The economic environment in Asia is also improving, with the Thomson Reuters/INSEAD Asian Business Sentiment index hitting a three-year high of 74 in the second quarter of the year, up from 70. A positive reading is anything above 50.
Investors can access the Asia Pacific equity space through the Comstage MSCI Pacific TRN UCITS ETF, denominated in US dollars, which has a five-star rating from TrackInsight. It has a total expense ratio of 0.45%, a tracking difference of -0.3564% and a tracking error of +4.93bps.
Another five-star rating product is the db x-trackers MSCI Pacific ex Japan Index UCITS ETF (DR) 1C in US dollars; its total expense ratio is the same as the Comstage product, but it has a higher tracking difference and tracking error, at -0.4961% and +8.28bps, respectively.
Meanwhile, fixed income ETFs continue to attract inflows as investors worry about the relentless rise of equity markets and look for diversification within portfolios.
During the month of June, bond ETFs gathered their highest inflows since July 2016, at €4.5bn, with corporate and emerging market bonds particularly popular, according to Lyxor data.
Emerging market debt ETFs attracted investors’ attention as the search for yield continues, taking in some €1.4bn, as many developed market bonds are not offering sufficient yield to beat rising inflation.
The only area of the fixed income space that saw negative flows were high yield ETFs, which suffered withdrawals of €82bn during the month.