$25 Bln in Equity ETF Inflows Beat Bonds in April


Stocks rule.

Especially when it comes to the backing instrument for exchange-traded funds (ETFs) in April, according to the latest US-Listed ETF Flash Flows report from State Street Global Advisors. Equity ETF inflows outran bond ETFs by $18 billion in April, as stocks continued to rally to new highs and investors sought to take on more risk in hopes of grabbing more alpha.

Matthew Bartolini, SSGA

In total, investors deposited over $25 billion into equity ETFs in April, the highest monthly flow total for equities in 2019. And according to Matthew Bartolini, head of SPDR Americas Research at State Street Global Advisors, equities got their boost at the expense of fixed-income ETFs.

“Equity exuberance led to a slowing of fixed income ETF asset growth, as the category only attracted $6.6 billion in April,” Bartolini said, “that’s 22% below their 3-year average. Investors favored the U.S. despite valuations becoming less attractive as stocks continue to rise.”

US-focused equity ETFs attracted nearly $20 billion, SSGA data recorded. Also, global equities continued to rally, Bartolini told Traders Magazine, with 30 countries now up double digits in 2019 and 72% of global stocks trading above their 200-day moving average.

When broken down further to the sector level, investors favored Technology, depositing over $2.5 billion during the month, while Financials attracted $1.5 billion – snapping a 12-month streak of outflows.

But the equity frenzy could be reaching the end, despite the positive tailwinds seen in the current marketplace, Bartolini warned. He reminded investors to first, stay invested with equities but target inexpensive firms with sustainable cash flows and quality balance sheets to mitigate slowing margins. Second, he added that investors should make sure bonds acts like bonds, providing diversification, stability and income to temper equity risk in the portfolio. Lastly, Bartolini said not to forget to diversify.

“Non-US stocks have lagged over the past few years, but shifts are cyclical and targeting foreign fiscal policy beneficiaries may enhance and diversify returns,” he said.

As for fixed income ETFs, April saw $6.97 billion in net inflows with Governments leading the way with $3.87 billion and Investment Grade Corporates next with $1.40 billion in inflows.

“Within fixed income, High Yield ETFs continue to enjoy a strong 2019 after a difficult 2018,” Bartolini also noted. “In April, investors added $874 million to high yield ETFs, bringing 2019 inflows total to $8.3 billion.”

Furthermore, investors favored longer duration bond segments in April as the yield curve modestly steepened. With marginally higher longer-term rates, the yields became attractive, particularly in light of the waning inflation and slowing growth dynamics, Bartolini concluded.

“Gold-backed ETFs had $1.8 billion of outflows in April, as the inflation trends 9lower/flat) combined with the continuation of the risk-on rally dampened sentiment for the yellow metal,” Bartolini said.

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