Bond ETF Flows Jump-Start the Summer


The month of June went out with a bang if you were a seller of exchange-traded funds (ETFs.)

Despite global equities rising 6% last month, Both bond and equity ETFs saw ample cash be put to work in those backing classes. Bond ETFs broke records as investors plowed $25 billion in funds in June – a whopping 45% more that their previous best showing back in October 2014.

Bonds. Nothing but bonds?

Matthew Bartolini, SSGA

Equity-backed ETFs were no slouch either – as June saw $20.5 billion in fresh cash enter the sector. However, according to the recent Flash Flows report from State Street Global Advisors, $19.3 billion of that was in U.S. equities.

In speaking with Matthew Bartolini, head of SPDR Americas Research at SSGA, bond ETFs record June haul pushed first half flows to a $74 billion tally for the first six months of the year – new record for any first six-month period.

“What we got was a boost of positive sentiment stemming from frequent dovish FedSpeak and an increasing probability of future rate cuts later this summer,” Bartolini said. “And just like that, one month after posting a 6% loss, global equities rocketed to a 6% gain in June, their best June return ever. Nearly 60% of global stocks now trade above their 50-day moving average, up from just 30% at the end of May.”

But back to bonds. Bartolini noted that even with a 6% rally in global equities, investors allocated a record amount to fixed income ETFs.

“Equity ETFs did garner $20 billion of inflows. However, inflows to bonds were truly out of this world with over $25 billion – a more than 45% increase over the prior record from October of 2014,” he said. “Bonds’ record June haul pushed the first-half figure to $74 billion, which is also a record amount for a first half. This surpassed the $70 billion bond ETFs amassed in 2017, a time period that was aided by regulatory tailwinds emanating from the fiduciary rule that led to all ETFs having a record amount of fund flows once the year was over.”

Also benefiting from solid macro factors and a dovish Fed, as well as a weaker US dollar and over $12 trillion of negative yielding debt saturating the market, gold prices broke through key resistance levels. As a result, gold-backed ETFs took in $2.8 billion in June – their highest inflow since June 2016. Bartolini noted that at that time, the world was whipsawed from the Brexit results and there was also over $12 trillion of negative yielding debt.

At the sector level, Energy ETFs led the pack, attracting $1.3 billion during the month. Real Estate and Consumer Staples ETFs were also favored, attracting $1.1 billion and $1 billion of inflows respectively;

High Yield ETFs attracted a healthy $4 billion of inflows in June, pushing their year-to-date total to almost $10 billion.

Looking ahead, Bartolini said the Communication Services is a sector to watch next. Bellwether names, he began, reside in the segment and earnings season is upon the market.

“Last season, the sector saw the second-highest magnitude of earnings beats, and it is only one of the three sectors that have witnessed more upgrades relative to downgrades to their full-year 2019 earnings estimates,” Bartolini said.


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