Follow the ETP Flows: Corporates Rule

Wednesday, July 18th, 2012

by Dodd Kittsley, CFA, iShares

One of the advantages to working for the largest exchange traded product (ETP) provider in the world is that you have a lot of data at your disposal.  In my role as the Global Head of ETP Research for BlackRock, I deal in data every day, particularly as it relates to the in- and outflows of the 4500+ global ETPs currently in existence.  As you can imagine, examining flows can be a great way to spot investment trends, take the temperature of the market and reveal sentiment shifts.

Right now, for example, global ETPs just experienced their largest first half inflows ever.  ETPs attracted net new assets of $105 billion during the first half of 2012, representing a 16% increase on the $90.6 billion of flows posted during H1 2011.  Total industry assets now stand at nearly $1.7 trillion.

Not surprisingly, fixed income ETPs were a main driver of growth.  As global markets continue to be volatile, investors have increasingly been using these products to capture new and diversified sources of income.  Fixed income ETPs attracted 41% of all inflows with $42.0 billion on the year, or 114% above 2011’s comparable YTD figure of $19.6bn. In fact, June was the 18th consecutive month in which global fixed income ETPs have attracted net inflows.  Total assets invested in fixed income ETPs now exceed $300 billion and account for over 18% of total industry assets.

But here’s something you might not have guessed – within fixed income, investment grade corporate ETPs were the clear leader, bringing in $15.5 billion.  Throughout this year, investors have consistently committed new money to the category, with monthly flows ranging from $1.7bn to $3.2bn.  It appears that many investors may agree with Russ K’s feeling that investment grade debt is the place to look for relative safety (albeit less than Treasuries) with the opportunity for positive real yield.

So what do we think is in store for the second half of the year?  Well, if volatility remains an issue (and Russ K believes it will), we expect to see the flows into fixed income ETPs continue (see chart below).  In fact, if they continue to follow their current trajectory, FI ETPs could actually sextuple their assets over the next 10 years – from $300 billion to $2 trillion.  As my colleague and fellow blogger Matt Tucker has said many times, investors are starting to realize that fixed income ETPs are simply a better way to invest in bonds.

Fixed Income Cumulative Net New Asset Trends

Never one to keep a good story to myself, I’ll be sharing interesting ETP flow data and related insights on a regular basis here on the iShares blog.  And I’d love to hear from all of you – what questions do you have that our data might be able to answer?

Source: BlackRock Investment Institute

Tags: Assets, Blackrock, Cfa, Corporates, Diversified Sources, Dodd, Etps, Fixed Income Investment, Global Head, Global Markets, Investment Trends, Ishares, Nbsp, New Money, Relative Safety, Russ, Second Half, Sentiment, Treasuries, Trillion
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A Hidden Correlation (Morillo)

Tuesday, December 6th, 2011

Many investors look to diversify their portfolios by holding a combination of stocks and bonds, with some investors turning to bond managers for help with their fixed income holdings.

But in this video, Daniel Morillo, global head of investment research for iShares, explains a hidden correlation that can exist between the active performance of bond managers and equities — which might mean your portfolio is not as diversified as you think.

Copyright © iShares

Tags: Correlation, Fixed Income, Global Head, Investment Research, Investors, Ishares, Portfolios, Stocks And Bonds, Video Head
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High Gasoline Prices Are Costing U.S. Consumers $360 Million More A Day At The Pump

Friday, April 15th, 2011

by Bob Van Der Valk, via EconMatters

This year is an instant replay of 2008 with the average price of regular gasoline in the US expected to reach $4 per gallon in the next month. Californians have already surpassed that mark and are heading for $4.50 per gallon by Memorial Day.

On Monday, April 11, Jeffrey Currie, the global head of commodities at Goldman Sachs (GS), told his clients that rising demand from emerging market players earlier this year had been overtaken by a supply shock driven by the MENA (Middle East and North Africa) unrest.

Currie said,

“That has had the effect of introducing more downside risk into the trade, particularly given record levels of speculative longs (trading) in crude,”

In other words, he advised them to sell – sell – sell WTI (West Texas Intermediate) crude oil and investors, like lemmings, followed him off the cliff. The WTI crude oil price reacted by immediately dropping almost $6 a barrel, or 5.8%, in two days.

However, the price of crude oil is not based purely on supply and demand and has a speculative element built into it, which is once again being heavily influenced by money flows from the big hedge funds such as Goldman Sachs (GS) and Morgan Stanley (MS). In other words, Jeffrey Currie pulled a head fake and his investors have been willing to go along with him.

Lloyd Blankfein, the CEO of GS, made his now infamous remark to the Sunday Times of London on November 8, 2009, saying: “Investment bankers are just doing God’s work”.

Today the MENA unrest has caused increases in crude oil prices and investment banks are taking advantage of the opportunity to make huge profits.  In any other times, this would have been called war profiteering, but now it is considered business as usual with Gordon Gekko’s motto “greed is good” back in vogue.

WTI is being used as the short leg of a spread involving funds playing off the MENA unrest. Investors are going long on Brent and shorting WTI then moving in and out of that spread whenever economic data is released in the US.

The chart below indicates we now have a significant disconnect between WTI and Brent futures in recent months. The black line shows the New York Mercantile Exchange (NYMEX) WTI and the red line shows the ICE Brent front month futures with the green line showing the basis (difference) between the two:


Chart Source – Mercatus Energy Advisors

Brent has thereby become more indicative of the world crude oil price and the price direction for U.S. gasoline prices.

The following chart produced by Doug Short shows the differential between WTI crude oil and the average price of gasoline for the last 10 years:

There are good reasons for the WTI prices to take a big plunge in the next few weeks with crude oil inventories at Cushing at an all time high. The direct connection to supply and demand was lost after paper traders took over managing those inventories at the Cushing, Oklahoma hub.

On Wednesday, April 13, the benchmark WTI crude oil price closed up 86 cents at $107.11 a barrel on the NYMEX after dropping 3.3% on Tuesday. The Brent crude oil for May delivery also went up to near $123 a barrel on Intercontinental Exchange (ICE) in London.

Goldman Sachs (GS) has enough investors following their advice to be able to control the ups and down of crude oil.  Meanwhile, the Organization of Petroleum Exporting Countries (OPEC) said higher prices have begun to chip away at fuel consumption, but did not call for an emergency meeting to address the situation.

President Obama could soon make another call for a windfall profits tax on major oil companies, which could bring in nearly a billion dollars a day for the US Treasury. He called for just such a tax during his campaign in 2008 at the height of the last speculative run up in gasoline prices.

In the end, the additional cost of crude oil comes out of the consumers pockets.  The high gasoline prices are costing the U.S. consumers $360 million per day more versus the price paid last year at the pump.

Related Reading – Oil Price Inflated, Time to Take Profits From Resource Related Investments

About The Author – Bob van der Valk lives in Terry, Montana and is a Petroleum Industry Analyst with over 50 years of experience in the petroleum, gasoline and lubricants industry.  He has often been quoted by news media and his opinions are also solicited by government entities in addition to his daily business of managing large scale supply and marketing operations.

The views and opinions expressed herein are the author’s own and do not necessarily reflect those of EconMatters.

Tags: BRIC, BRICs, Commodities, Crude Oil, Crude Oil Price, Crude Oil Prices, Downside Risk, Gasoline Prices, Global Head, Gold, Goldman Sachs, Gordon Gekko, Instant Replay, Investment Banks, Money Flows, Morgan Stanley, oil, Price Of Crude Oil, Sachs Gs, Short Leg, Sunday Times Of London, Supply Shock, Times Of London, Van Der Valk, Wti Crude Oil, Wti Crude Oil Price
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BlackRock’s Fisher on Inflation, Economy

Wednesday, January 26th, 2011

Peter Fisher, global head of fixed income at BlackRock, discusses the economy, the Fed, QE2, inflation and more with CNBC.

Source: CNBC, January 25, 2011.

Tags: Blackrock, Cnbc, Economy, ETF, Fixed Income, Global Head, inflation, Peter Fisher, Qe2
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