ETFs investing in UK equities are down 2.9% over the last month after the fall of Sterling currency, lower-than-expected inflation data and the Bank of England’s hesitation to raise interest rates one year after Brexit.
ETFs saw record-breaking inflows over the first two months of the year, but cracks are beginning to show as investors start to worry about the UK’s Brexit negotiations and US President Donald Trump’s ability to implement his reforms.
Institutional investors are allocating to ETFs more than ever driven by market volatility, concerns about liquidity in the bond space and a desire to take advantage of the latest bouts of outperformance, according to a study conducted by Greenwich Associates.
The year that has passed has been full of shocks and surprises, and this has resonated in the financial markets, causing volatility and unexpected investor behaviour across the board. What does 2017 have in store?
Investors have started shorting sterling once again, after reversing their bets against it earlier in the month, after the British currency fell once again on the back of comments made by Prime Minister Theresa May that pointed to a potential ‘hard’ Brexit.
European equity ETFs suffered renewed outflows in the month following Brexit, despite a reversal of this trend in June, the month when the referendum took place, as spooked investors rushed to take money out of Europe.