Flow & Tell with iShares | September 2024 ETF Flows

Active ETF launches continue to tick higher. September delivered the arrival of 28 new active funds, accounting for a whopping 72% of all newly minted ETFs.¹ Active appetite has been widespread, but flow trends show that investors have notably leaned into active management in underperforming segments:

• Over the last decade, value returns have trailed growth by triple digits, despite value’s Covid-era rebound. Value currently sits at a recent-record low weight in the S&P 500, and investors have turned to active solutions to calibrate that spread. So far this year, active value ETFs have captured 57% of new flows, a sharp contrast from growth trends (14% of YTD flows into index products).²
• Restrictive rates, punitive debt profiles, and a stalling growth backdrop capped small cap gains this year — large cap equity returns doubled small caps. This divergence was emphasized in September, with small caps in negative territory on the month.³ Despite active small caps only representing a third of the small cap ETF universe, they have captured a majority of YTD flows, adding another $1.5bn inflows in September while indexed small cap ETFs saw outflows.⁴
• Emerging markets round out the historical laggards. Post-GFC, the gap between EM equity performance and developed market equity performance widened.⁵ September marked the fourth consecutive month of active EM ETF flows outpacing passive EM ETF flows, and by a wide margin — in H2 so far, active has seen $1.7bn in flows while passive ETFs recorded outflows.⁶

China’s central bank and the Politburo have delivered the most comprehensive stimulus package since the pandemic. Easing of key policy rates and property sector and consumption support are intended to buoy economic growth after a slew of sluggish prints across real estate, industrial production, and consumer confidence.

The market response was rapid and dramatic — the Shanghai Composite Index swelled 21.4% in the five trading days following the announcements while the Shenzhen Component Index gained over 30%, all paired with trading volumes large enough to trigger system glitches.⁷

The powerful rally was met with powerful flows. China ETFs were on track for a negative September but reversed to add $800mn in three days — by month end, it was the most positive month of flows in over two years. Investors added $1.4bn on the last day of the month alone — a daily flow larger than every other month this year save one.⁸

Notably, flows into China ETFs did not translate to flows out of EM ex-China strategies. Monthly flows remain robust, signaling that investors continue to opt for granular solutions and trade China separate from broad EM allocations. The pattern holds regardless of positive or negative price action in China — EMXC, iShares MSCI Emerging Markets ex China ETF, hasn’t seen an outflow in almost two years.

Gold prices steadily climbed on the year, reaching fresh highs even amid a backdrop of weaker interest rate expectations and a strong USD — breaking historical correlations as both factors tend to spell headwinds for gold. Gold now trades above the critical $2,500/oz band, boosted by the beginning of the Fed’s rate cutting cycle and geopolitical volatility in the Middle East. From 2022 to the first half of 2024, central bank demand was the primary driver of gold prices — central banks purchased net 1,037 tonnes and 483 tonnes in 2023 and 1H2024 respectively, sustaining gold prices despite high global interest rates.⁹ Fed cuts spurred September’s demand, with gold prices rallying over 5% as the start of rate cuts upped the non-yielding asset’s relative attractiveness.¹⁰ Gold ETPs gathered $1.47bn in the week of the September FOMC meeting.¹¹

Flows and performance in gold are also tethered to elevated geopolitical volatility overseas. Investors reached for gold, and commodities broadly, in search of a hedge against escalation. All commodity ETPs (which include gold, silver, and copper) added $1.47bn in September, with over 30% of those flows occurring after fighting in the Middle East intensified during the last five trading days of the month.¹²