Q3 2022 13F ETF Equity-Only Sub-Asset Class Flow Trends

Last update we took a high level look at the asset class level filings and flows into ETFs during Q3, and also compared them mutual fund structure flows. The data showed divergent trends which told us that structure does impact flows, and it is not always purely about asset allocation decisions.

An example of this was in US equities during Q3, the mutual fund flows showed sizeable outflows during the quarter however the flows into ETF packaged non-US equities more than made up for this and meant a net-positive for the quarter. 

Drilling down into the Q3 equity sub-asset class flows/filings, allocators were dealing with an indecisive market across the board. Equity markets started the quarter by recovering from earlier declines, but was quickly upended by the Fed’s unsettlingly sharp interest rate increases and an extraordinary hawkish turn in policymaker rhetoric at Jackson Hole aka the “Pain” speech from Powell.

Performance wise, domestic Small Cap was the relative outperformer in Q3 2022 despite falling (-2.2%) during the quarter, commodities gave up some of their YTD lead of over 20% even after posting a (-10.3%) return in Q3, and EM equities took the biggest hit (-11.4%) over the quarter for a YTD decline of nearly (-27%). Asset class performance however is not always correlated to flows as this quarter’s data showed us.

Despite the environment that persisted, equities maintained the majority share of ETF assets at 67%.

Chart 1

Under the surface however, a few trends stood out: 

• Allocators continued to shift from equity funds into equity ETFs across US equity, intl, and the non-traditional categories.  One of the factors were that many funds were making preliminary cap gain announcements and allocators shifted to ETFs as a place holder.
• Commodity tracking outflows continued as price pressures came off the boil.
• Sector specific equities continue to struggle across funds and ETFs, specifically pulling away from real estate, tech and health care.  We have seen this trend persist for over a year.

Looking across the equity sub-asset classes and then comparing the structure specific data was the most interesting data: 

• A very pronounced increase in ETF allocations into the large blend bucket after a two back-to-back quarters of negative flows.  Funds however did not see flows reverse.
• Large divergence in large cap growth, as ETFs continued to build on positive net flows, however it was not large enough to offset the $23 B outflow reported in mutual funds with tax loss selling making an impact.
• Continued allocations into non-US equity ETFs via foreign large blend, again reversing the trends we saw in the first half of the year.  This mirrors what we have seen on the public pension commitments as well, with international seeing consistent flows this qtr.
• Income, income, income continues to be sought in equities with strong flows in the large cap value and derivative income/cov call categories. 
• Honorable mention goes to EM equities, while they were some of the worst performing during the quarter, the EFT flows held very consistent…here again, we have seen consistent EME commitments during the quarter via public pension funds as well.

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