First, some good news: for the first time since 2008, austerity measures and quantitative easing weren’t the dominant topic of conversation at Canadian Investment Review’s Global Investment Conference, which was held this week in Los Angeles.
Now for some bad news: macroeconomic hand-wringing has been replaced by some serious geopolitical worries. And those could dominate discussions over the coming years to the detriment of hard-won economic gains in regions such as Europe and some emerging markets. Notably, keynote speaker Ian Bremmer, president and founder of Eurasia Group, warned that the escalating situation in the Ukraine could easily derail Europe’s fragile recovery, especially if sanctions against Russia continue. Moreover, mounting tension between China and Japan could have very strong ripple effects throughout the region and the global economy (including in the U.S., which could find itself caught in the middle of a poisonous relationship).
What has all this got to do with exchange-traded funds (ETFs), you might be asking?
Well, if you believe some of the messages we heard from Bremmer and other speakers, we seem to be experiencing a sweet spot in global markets, where investors appear to be confident and happy investors, even in the face of political ups and downs. The proof is in the numbers: flows into ETFs flourished in March with net inflows of US$11 billion, pushing assets in the industry up to a heady new high of US$2.45 trillion, according to a report from ETFGI. Not quite the same pace as this time last year but positive all the same.
And investors haven’t minded the bumps along the way. According to ETFGI managing partner Deborah Fuhr, March was the first month in 2014 where equity exposures gained more new assets than fixed income. All that, despite market volatility that saw the S&P 500 close at an all-time high on March 7 and then end the month up a measly 1%.
Could we be getting used to volatility? Has 2008 given us stronger stomachs? And will investors be able to tough it out if things between Russia, the U.S. and Europe get a lot worse?
It will be interesting to see the next quarter’s numbers. And it might even be good news for ETFs focused on Canada, the U.S. and Latin America, given what’s happening in other areas of the world. With geopolitics front and centre, ETF flows will be an interesting tracker of investor sentiment in what’s looking to be a new era of political instability.