BlackRock’s US quality factor ETF booked standout flows last week as European investors sought exposure to companies boasting stable earnings and strong balance sheets. 

According to data from Ultumus, the iShares Edge MSCI USA Quality Factor UCITS ETF (IUQD) saw $1.1bn inflows in the week to 8 October.

Worth noting is this inflow into quality was exclusive to US equities. In the same week as the rush to IUQD and IUQA took place, the iShares Edge MSCI World Quality Factor UCITS ETF (IWFQ) saw $118m outflows while the Amundi MSCI Europe Quality Factor UCITS ETF (QCEU) booked an exodus of $222m.

The S&P 500 fell by more than 5.2% between 3 September and the beginning of last week, representing its largest monthly drawdown since October 2020 when the ‘second wave’ of COVID-19 impacted equity valuations. 

With US large caps – the staple of IUQD – down from their all-time-highs last week, some investors perhaps chose to continue a behavioural pattern that has occurred throughout the year: using ETFs tactically to buys ‘dips’. 

However, unlike some of their more stubbornly optimistic peers, opportunistic factor investors likely rotated into US quality ETFs as a relatively safe way of gaining US equity exposure, Athanasios Psarofagis, ETF analyst at Bloomberg Intelligence, said.

“This is a very interesting move given value is back to performing well,” Psarofagis said. “It seems like some risk-off positioning as we head towards year end.”

Todd Rosenbluth, head of ETF and mutual fund research at CFRA, agreed: “With increased US stock market volatility in September there has been a focus on companies with stronger balance sheets that tend to hold up better and can still rise during a rebound. Quality ETFs provide diversified exposure to these companies.”

Representing a less conservative allocation, European investors poured $1.1bn into the iShares Core S&P 500 UCITS ETF (CSP1) last week. Going a step further, US-listed leveraged exchange-traded products (ETP) gathered $1.5bn in a single day on Monday 4 October including $302m into the Direxion Daily S&P 500 Bull 3x Shares (SPXL). 

Rosenbluth said investors are increasingly using BlackRock’s factor ETF suite to shift to or from quality, value, momentum, size and low volatility products.

The last time a multi-billion-dollar factor ETF rotation occurred in Europe was in July, when a presumably institutional transaction saw $3bn swapped into the iShares MSCI Value Factor ESG UCITS ETF (IUVE) and the iShares MSCI Momentum Factor ESG UCITS ETF (IUME) from their vanilla equivalents.

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