Low volatility and value ETFs recorded the largest outflows in Q3 2022 as investors turned to growth strategies during a brief risk-on period early in the quarter.
While the iShares Core S&P 500 UCITS ETF (CSPX) saw the largest outflows at just over $2bn, five of the next six were either value, minimum volatility or momentum factor ETFs as investors looked to benefit from the brief uptick in growth stocks following better than anticipated US inflation figures.
Of these, the iShares MSCI USA Minimum Volatility ESG UCITS ETF (MVEA) saw the largest outflows at $1.2bn, according to data from Bloomberg Intelligence.
MVEA was followed closely by the iShares MSCI USA Momentum Factor ESG UCITS ETF (IUME) and the iShares MSCI USA Value Factor ESG UCITS ETF (IUVE) which posted outflows of $1.2bn and $1.1bn, respectively.
Elsewhere, the iShares Edge MSCI World Value Factor UCITS ETF (IWVL) saw outflows of $979m while the Xtrackers S&P 500 Equal Weight UCITS ETF (XDEW) posted outflows of $940m.
The market looked like it bottomed out in mid-June and the rally was further boosted by US inflation figures of 8.5% in July, leading investors to allocate back into risk-on US equities.
The rotation led non-defensive US-focused ETFs to dominate the inflow charts over the same quarter. However, investors may have paid the price as the S&P 500 drifted into a bear market, falling 16.7% from 16 August to 30 September.
Further signs that investors anticipated an easing inflationary environment can be seen in outflows of certain bond ETFs.
The Lyxor EUR 2-10Y Inflation Expectations UCITS ETF (INFL) and the Lyxor Core US TIPS DR UCITS ETF (TIPH) posted outflows of $784m and $626m over the quarter, respectively.
Investors were also looking at longer-dated bonds amid recession fears and anticipation the Federal Reserve will halt its tightening cycle at a lower level than was previously priced in. For example, the iShares $ Treasury Bond 1-3yr UCITS ETF (IBTE) posted outflows of $471m.
The Fed recently earmarked another 1.25% rate rise before the end of the year which would take interest rates to 4.5%.
Investors also continued to shun European stocks over Q3 – at their fastest rate since Brexit – amid soaring inflation and a deepening energy crisis continue to plague the continent.
Leading the way was the Xtrackers Euro Stoxx 50 UCITS ETF (XESC) which recorded outflows of $1.2bn. This was followed by the iShares STOXX Europe 600 UCITS ETF (EXSA) with outflows of $687m.
The iShares Edge MSCI Europe Value Factor UCITS ETF (IEVL) with outflows and the iShares Core Euro STOXX 50 UCITS ETF (CSX5) recorded outflows of $484m and $477m, respectively.
Commodity ETFs also took a hit in Q3 on weakening demand fears as the recession in Europe and the UK is starts to play out, resulting in falling oil prices over the quarter to well below $100 a barrel.
As a result, the Lyxor Commodities Refinitiv/CoreCommodity CRB TR UCITS ETF (CRB) saw investors pull $784m, while the iShares Diversified Commodity Swap UCITS ETF (ICOM) and the WisdomTree Enhanced Commodity UCITS ETF (WCOG) recorded outflows of $680m and $458m, respectively.
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