Fall is for fixed-income fund inflows.

As the weather has cooled so has investor interest in equity-backed exchange-traded funds, with fixed-income ETFs attracting more than $14.7 billion during October compared to $10.9 billion for equity ETFs during the same time. Bond ETFs have now attracted nearly $130 billion year-to-date in 2019 —outpacing the previous record of $127 billion in 2017.

According to Matthew Bartolini, Head of SPDR Americas Research at State Street Global Advisors, the gains in bond-backed funds stem from the fact ETF investors have been reluctant to express a risk-on view, which normally favors equities. Investor caution, he added, has pushed bond inflows over the last three months over the $14 billion level.

“While equity funds have had dour flow results, bonds have been breaking records,” Bartolini began. “After averaging more than $12 billion a month in 2019, nearly $130 billion has now gone into bond ETFs in 2019 – outpacing the previous record of $127 billion in 2017. With these inflows, assets are now firmly over $800 billion. If the next two months keep up 2019’s average flow gathering pace, US-listed bond ETF assets could surpass $850 billion by year’s end – with a realistic shot at surpassing the one trillion mark in 2020.”

Wow.

In looking at equities, ETFs backed by them attracted $10.9 billion in October, the lowest monthly total for the year. Furthermore, the $87 billion year-to-date is off 41% from last year’s pace. Bartolini said that these inflows come as investors have to tune out geopolitical noise and slower economic growth and despite this global equities still posted their 8th month of gains for 2019, and US stocks hit new highs.

“Equity investors celebrated the eighth month of global stock gains by allocating $10 billion to equity-focused ETFs and while a net inflow, this is the lowest monthly inflow total for the year,” Bartolini said. “Even with an average $74 billion of inflows for November and December 8 months combined over the past five years, it is unlikely that equity ETFs will surpass $200 billion in 2019, breaking a two-year streak.”

And that’s not all. Bartolini added that not only will equity fund flows likely miss the $200 billion target, but they are also likely to have the lowest annual flow total over the past five years.

“There are two more months to go, but the average monthly flows for November over the past five years have been $33 billion, with December averaging $41 billion. If those averages are hit, which would be more than a 350% increase from the average monthly totals in 2019, the total full-year figure would be just $162 billion – half of what the record was back in 2017,” he said.

On the sector level, financials reversed course and led the pack, attracting over $1 billion in October.  Real Estate continued to garner assets, attracting $733 million during the month while materials and health care saw the most outflows, shedding $598 million and $596 million, respectively.

Also, Emerging Market (EM) ETFs posted inflows for the second consecutive month, according to SSGA data, after having four consecutive months of outflows.

“So, it seems sentiment has turned a bit. But it hasn’t been a full-stop U-Turn, with an equal rush in of assets to offset the rush out EM has endured, as evidenced by the $5 billion of outflows over the past three months,” Bartolini said.