Amid rate and geopolitical uncertainty, investors diversified into fixed income, quality equities and commodities in June, according to asset manager Invesco’s European ETF flows data.
European ETFs attracted nearly $24 billion in net new assets in June, pushing year-to-date inflows above $164.1 billion.
Equities accounted for half of June’s total flows, bringing in $12 billion, as global markets gained momentum late in the month. Record highs in the S&P 500 and Nasdaq drove demand for global equity ETFs ($5.2 billion), followed by thematic strategies ($2.7 billion), US exposures ($2.1 billion) and emerging markets ($2 billion).
Within thematic equities, defence-related ETFs saw a resurgence following Nato’s commitment to increased military spending. At the recent Nato summit members agreed to a new 5% of GDP defence spending target.
If achieved, that would double defence spending by 2035.
Amid slower growth and elevated rates, investors also favoured quality-focused equity strategies, targeting “companies with stable earnings and low debt levels”.
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Fixed income gained $8.9 billion, representing 37% of all ETF flows in June. European government and corporate bonds benefitted the most, but growing interest in high yield and emerging market debt was noted as investors positioned for a “stronger economic climate”.
$7.7 billion flowed into investment grade and high yield credit ETFs, with 40% of that allocated to ESG strategies. According to the data, investors appeared to be rebalancing toward sectors such as energy to “refocus on the energy sector amid ongoing tensions in the Middle East”.
Commodities also gained $3 billion in new assets for the month. Demand was led by precious metals, and according to the report, uncertainty around inflation and geopolitical risks appeared to be driving a renewed interest in metals as a hedge.