Fixed Income Leads ETFs Higher in April
Exchange-traded funds are back in the high life, again.
After two consecutive months of outflows, US-listed ETFs changed course in April, as investors poured $15 billion into fixed income ETFs and $10 billion into equity ETFs. And issuers throughout Wall Street are rejoicing.
According to State Street Global Advisors’ Matthew Bartolini, April’s fixed income flows which totaled $15.3 billion are the second highest monthly inflow total for fixed income ETFs ever – bested only by a record-setting $17 billion in October 2014. Flows in equities, while not as stellar, still managed to post gains in technology, energy and utility ETFs with $599 million, $267 million and $89 million, respectively.
“As investors sought to temper risk, government-focused fixed income ETFs attracted $6.7 billion of inflows,” Bartolini told Traders Magazine. “Assets in government-focused ETFs are up 22% year to date through the end of April too.”
Overall, after seeing consecutive monthly outflows for the first time in a decade in February and March, the US-listed ETF industry returned to inflows in April, taking in nearly a total of $30 billion. This brings 2018’s haul to more than $95 billion, still the second- best start to a year on record, trailing only last year when ETFs amassed a stratospheric $168 billion dollars through the first four months of the year.
“For the third consecutive month, however, fixed income inflows outpaced those of equities, with the segment adding $15 billion in April to bring 2018’s inflows to over $31 billion,” Bartolinin said, referring to the latest SSGA Flash Flows report. “This represents the second-highest monthly inflows for fixed income ETFs ever in 2014. Back then, investors were dealing with elevated volatility levels, US led airstrikes in Syria and concerns over the path and pace of Federal Reserve rate hikes. Sounds familiar, doesn’t it.”
Furthermore, he added that even as the US Treasury 10-year yield passed 3% for the first time in four years, investors still gravitated towards bonds as a source for potential diversification, going back to basics to balance out equity risks in portfolios.
So, what about equities?
Looking back, US equity funds had posted over $34 billion in outflows in February and March while they started the year off to a flying start – snatching $40.5 billion in January from investors. April saw what appears prima-facie to have been good recording $6 billion in inflows. In 2018, equities have managed to add $12 billion in assets but that equates to only a net increase in assets of nearly 1%.
The gains in equities were limited though, Bartolini cautioned, as inflows were seen only in technology, energy and utility ETFs with $599 million, $267 million and $89 million, seen respectively.
“Despite money having poured back into equities, it appears investors were not willing to venture beyond broad based exposures, even when sector return dispersion with both trailing 3 month and 12 month is above the long-term average, indicating a constructive environment for sector rotation,” Bartolini said.
One anomaly within equities of note was the outflows in the Materials sector which posted a $1.08 billion outflow. Year-to-date flows are still in the green at $1.58 billion.
“Don’t let that Materials number fool you,” Bartolini explained. “Ninety-five percent of that stemmed from outflows in gold miners. Removing gold mining exposures, Materials, a sector highly sensitive to inflation and commodity prices, would have been nearly flat on the month.”
Lastly, Emerging markets ETFs continued to see inflows totaling $2.5 billion in April. Year-to-date, emerging market ETF assets are up 8.6%.
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With Eugene Kanevsky, James Redbourn, and Joanna Wong, CLSA