Investor sentiment towards various geographical regions has been driving their investment decisions so far this year, with some of the best performing equity markets failing to gain the support they deserve, while underperforming developed equities have taken in the bulk of the money.
Most notable here are Chinese equity ETFs, which have had a dire beginning to the year in terms of flows, shedding €1.5 billion over the year to 22 March as investors continue to fear China as an investment destination. However, so far this year Chinese equity ETFs have shown a strong performance compared to their developed peers, returning 5.8%, according to TrackInsight.
Russian stocks, which are up a whopping 31% over the period, have also suffered continued outflows over the last few months, as the general distrust towards Russia mixed with fears of the volatility the March presidential election might bring. Overall, inflows into the region’s ETFs over the year to date have been a measly €5 million, TrackInsight’s data shows.
Emerging markets outperform developed peers
Overall, emerging market stocks are powering ahead of their developed peers year to date, with the segment returning 2.5% over the period. This outperformance comes in stark contrast to developed equity ETFs, which overall have fallen by more than 3% over the same period, despite a strong start to the year.
Chief among this are US equities, whose performance has suffered since the beginning of February, leading to choppy flows as investors were plagued by fears of a trade war between North America and its trading partners, as well as concerns the multi-year bull market may finally be coming to an end.
However, despite recent outflows the sector is still overtaking emerging equities in terms of cumulated flows year to date, taking in more than €17 billion in total versus the €13 billion that has gone into EM stock ETFs.
Developed equities continue to attract investors despite underperformance
The picture for developed equities as a whole is similar, with the asset class taking in a whopping €53.6 billion so far this year, despite recent outflows (most notably almost €12 billion on 19 March).
In Europe, overall equity flows have remained positive year to date at €5.3 billion, though this was severely hampered by €1.8 billion of outflows over the past month as performance has continued to deteriorate. This year to 22 February, the category is down 4.2%, making them the worst performer among the developed stock categories.
Yet investors continue to commit funds to Europe; for example, German stocks, which have been some of the worst performers within the category, down 5.7% year to date, have taken in nearly €1 billion.
A particularly large proportion of the flows has gone into Japanese stocks, which have taken in €12.6 billion over the period, comparable to the flows into emerging markets. However, the returns from this sector have also been lacklustre at -1.4%.
But with recent fears of a trade war dampening the support for US equities in particular, now may be the time for emerging markets to shine. Last week saw US stock ETFs lose around €18 billion, while emerging stocks are continuing to take in money, albeit at a much slower pace (just €580 million over the same period, according to TrackInsight).