ETF Inflows Hit All-Time High


It was only a matter of time.

Despite heightened geopolitical tensions and growing uncertainty around fiscal policy, the debt ceiling, and the Fed, US-listed ETFs posted inflows of $22 billion in August. This raises 2017’s year-to-date total to $295 billion – topping 2016’s record high of $285 billion of inflows and hitting an all-time high in inflows, according to State Street Global Advisors.

Matthew Bartolini, SSGA

Matthew Bartolini, Head of SPDR Americas Research at SSGA, told Traders Magazine that if the year were to stop here, this would be the highest annual haul ever – besting the record set just last year of $285 billion. The pace of inflows has slowed, however, he cautioned. This month’s total is 20% less than July’s figure of $28 billion, which was 42% less than June’s.

“This reduction is largely driven by a slowing of equity flows, even as the category surpassed the $200 billion mark for the year in August,” Bartolini said. “Fixed income ETFs flows also slowed, although they’ve been strong all year. With only $9.8 billion deposited in August, this ended a four-month streak of 11 figure inflows.”

And while things look great in the US sector, overseas inflows are stellar. According to SSGA data, broad-based international funds posted $8 billion of inflows, besting the US for the month by a huge margin. And, for the first time this year, the segment now leads the US on a trailing six- month basis.

“Emerging market exposures took in $2 billion of this $8 billion, a sign of investors seeking out growth and harnessing supporting macro trends for emerging markets, such as falling rates in the US and the continued weakness in the dollar,” Bartolini said.

Diving deeper into the US equity data, Consumer Discretionary ETFs posted outflows of $1.5 billion last month and are now in the red for the last 12 months. Consumer Staples fared a bit better with a zero inflow rate for the month but are also down for the last 12 months with over $3 billion out.

Bartolini noted there’s a peculiar trend here – that according to the latest GDP report, the consumer continued to do the heavy lifting, growing at a 3.3 percent clip and contributing to 110 percent of the growth – but none of this appears to be affecting the underlying companies, as earnings for both sectors were below 4 percent.

“That’s well below the broader markets 9.6 percent growth rate,” he said. “This low growth was definitely noticed, as the one-day reaction to earnings announcement for stocks in those sectors averaged a combined 0.9 percent drop.”

On a positive note, August was a good month for the Technology silo, which continues to chip away at Financials for the twelve-month leadership position. This was helped by the $510 million in outflows from Financials in August, perhaps a result of legislative malaise and geopolitical tensions.

Delving further into fixed income ETFs, investors dumped in over $400 million during the month to high-yield funds. But when spreads had widened to their highest level during the middle of the month, high yield fund flows stood at a negative $400 million.

Lastly, Commodity ETFs, led by gold-back funds attracted $1.3 billion in August as the yellow metal rose above $1,300/oz for the first time since the election.

Bartolini said that commodities ETFs benefited from the geopolitical posturing between the US and North Korea. As evidence, he reminded that volatility as measured by the VIX reached the highest reading of the year August 10th when rhetoric took a turn for the worse.

“This sent gold to its highest level since November and the Dollar to its weakest point in two years,” he said. “Autumn will likely test the markets’ resolve and ensuring portfolios are properly prepared for further episodes of volatility may be the way to keep the peace – in portfolios at least.”


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