The year of
continued in September, with the Fed's shifting signals impacting
global ETF flows
yet once again
. While concerns over an imminent taper caused investor
uncertainty and modest outflows at the beginning of the month,
things quickly turned around following the
Fed's surprise announcement
that it would maintain its current pace of monetary stimulus.
Global ETF flows in September surged to $35.0 billion.
The month saw a jump in equity inflows ($28.7 billion) and
a return to fixed income inflows ($6.6 billion) following
redemptions in August
. On the equity side, developed markets ($23.4 billion) led
the charge, with two-thirds of flows going into funds with US
exposure. Meanwhile, fixed income flows continued to trend
toward shorter maturity exposures ($3.1 billion).
One notable development in September was the pickup in
emerging market (EM) ETF inflows on both the equity ($5.3
billion) and EM fixed income sides ($0.9 billion). While
it's still too early to call it a trend, this may indicate that
some investors are warming up to EMs again - with the Fed's
. We saw the same turnaround in EM flows after the Fed's
no-taper announcement in June (see below).
So what are the implications for EMs investors? For one
thing, it's important to understand what's driving EM investment
behavior. Clearly, expectations regarding US monetary
policy have been a major influence on EM ETF flows this
year. When investors have been worried about
tapering, we saw outflows in EM funds. When the Fed backed
off, investors edged back into them. We may see this dance
again, depending on what happens at the next FOMC meeting.
But these delays are simply postponing the inevitable:
eventually, tapering will occur. And while there's
certainly evidence to suggest that the end of US stimulus might
be negative in the short-term for some EM economies, not all EMs
are alike - and some may be better suited to
weather the end of easy money
than others (Russ K's pick: China). This is where knowing
what you own in an ETF becomes key.
It's also important to understand that the end of QE3 doesn't
necessarily signal disaster for EMs. As Russ points out in
, the impact of tapering on emerging economies will depend
largely on the pace and the expected path of rates - two factors
that are, for now, unknown.
Source: BlackRock as of 9/30/13