While February saw the eighth consecutive month of flows above $3 billion into Australian-based exchange-traded funds (ETF), these were insufficient to offset market declines observed throughout the month, leading to a moderate decline for the industry market cap since January to $254 billion, according to new data from VanEck.
Similarly, Betashares’ monthly ETF report observed a “rare dip” in terms of assets on the back of global sharemarket declines during the month.
Speaking to InvestorDaily, VanEck Asia-Pacific’s CEO and managing director, Arian Neiron, said the past six weeks have demonstrated a notable shift away from the US market, with a near-complete reversal in market leadership compared to last year.
“European and Asian stocks have been outperforming, while US equities, though still attracting flows, are no longer the clear standout,” he said.
“The eurozone and Japan recently surprised to the upside with stronger-than-expected GDP growth, while China’s recent stimulus measures have fuelled a sharp rebound in equities. In contrast, US growth is moderating, making international markets more attractive.”
Neiron explained that “valuation dispersion”, and not a change in earning per share (EPS) forecasts, is the catalyst for this rotation.
“At this stage, we do not observe a market risk-off sentiment, but rather a rotation,” he added.
Australian equities also took a hit in February, with ETF flows dropping 44 per cent to $791 million amid a broader shift towards caution in the market.
The top performing ETF for February was the iShares China Large-Cap ETF (IZZ) with monthly returns of 11.6 per cent, followed by the iShares Asia 50 ETF (IAA) in second position at 7.2 per cent.
Measured by monthly net flows, within the top five best performing ETFs was the Global X Physical Gold (GOLD) ETF with flows of $112.15 million, while the top performer was the Vanguard Australian Shares Index (VAS), attracting flows just shy of $350 million, according to VanEck.
Cryptocurrency ETFs worst performers
As reported by VanEck, the worst performing ETFs over the month, measured by monthly returns, were cryptocurrency ETFs, with the Monochrome Ethereum ETF (IETH) suffering a 19 per cent slump, followed by the Global X 21 Shares Ethereum ETF (EETH) with a loss of 18.2 per cent, and the Betashares Crypto Innovators ETF (CRYP) with 17.8 per cent.
Commenting on this, Neiron explained digital assets have historically shown greater vulnerability to market volatility than other asset classes.
“The most recent performance swing is a good example of this, with crypto ETFs being one of the top performers in January, and then one of the worst in February,” he told InvestorDaily.
“Digital asset sentiment was impacted on multiple fronts, including a major sell-off (driven by macro fears and a bitcoin carry trade collapse), the hacking of crypto exchange Bybit, and lingering uncertainty regarding President Trump’s strategic bitcoin reserve.”
Cryptocurrency ETFs’ recent underperformance contrasts with their strong performance throughout 2024, as the broader Australian cryptocurrency ETF market saw over $330 million in flows last year.
