Fidelity: Equities lead the way as ETF flows hit a new high in July
In July, the European UCITS ETF market experienced a record-breaking month, attracting net inflows of USD 59.9 billion, the highest total ever recorded in a single month. 'The ETF market continues to demonstrate remarkable resilience,' says Stefan Kuhn, Head of ETF Distribution, EMEA at Fidelity International.
'However, beneath the surface, we are seeing a noticeable shift in investor preferences. The artificial intelligence (AI) and technology trade, which was a major driver of markets in the first half of the year, lost momentum in July. While Investors remain committed to the ETF market, portfolio allocations are becoming more diversified. Following the strong performance of many AI and technology stocks, there is growing debate over whether the substantial investment in AI infrastructure will ultimately generate the expected returns.'
This reassessment was particularly evident in the semiconductor sector. Chip stocks came under pressure as investors increasingly questioned whether the massive investment in AI infrastructure would deliver sufficient returns. Sentiment was further dampened by growing concerns over rising competition from China.
Equities: Europe returns to positive territory, US remains dominant
Within equities, the US continued to dominate investor allocations. At the same time, European focused equity ETFs saw a modest recovery. After three consecutive months of net outflows, European focused equity ETFs attracted just under USD 3 billion of net inflows in July.
'The return of positive flows into Europe is noteworthy given the region had been under pressure from weak short-term growth expectations,' says Kuhn. 'This is not yet a full-fledged trend reversal, but it does suggest that investors are once again thinking more actively about regional diversification after a prolonged period of US dominance.'
Emerging market ETFs also performed significantly better than in previous months. With inflows of over USD 4 billion, the segment slightly exceeded its twelve-month average. Overall, the data suggests investors are broadening their equity allocations, although US ETFs remain the clear leader.
Fixed income: The asset class continues to differentiate
The fixed income ETF segment continues to grow at a consistently high level. Since the beginning of the year, bond ETFs have attracted at least USD 10 billion of inflows in all but one month.
'Demand for bond ETFs remains strong, supported by yields becoming much more attractive over the past few years,' says Kuhn. 'Corporate bond ETFs are also benefiting from this trend.'
Investors should pay close attention to the steadily expanding product range within the fixed income ETF universe. Increasingly specialised segments are emerging alongside traditional government and corporate bond exposures, offering investors a wider range of tools for portfolio construction.