Hi! In this week’s ETF Wrap, we dive into January flows.
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Asset flows into exchange-traded funds were a bit unusual last month, according to Elisabeth Kashner, director of global fund analytics at FactSet.
In January, international equity captured the top two inflows among exchange-traded funds listed in the U.S., while fixed income ETFs broadly attracted more capital than equity, Kashner said by phone. The JPMorgan BetaBuilders Europe ETF
and the iShares Core MSCI Emerging Markets ETF
attracted the most assets, with each fund seeing more than $3 billion of inflows last month, according to FactSet data emailed by Kashner.
International equities broadly beat U.S. stocks in 2022.
“International outperformed last year. I think the beat goes on,” said Bob Doll, chief investment officer at Crossmark Global Investments, in a phone interview. “That beat has been amplified” by China’s reopening of its economy following stringent restraints due to COVID-19, he said, as well as by Europe’s “mild winter” helping it avert an “energy crisis.”
While flows into ETFs that buy stocks were globally “strong” in January, fixed income “nudged out equity by a little,” according to Kashner. “You don’t see that everyday,” she said. “That’s kind of a big deal.”
As rates quickly rose last year amid the hottest inflation in decades, investors embraced more “targeted products” than broad fixed income funds such as the iShares Core U.S. Aggregate Bond ETF
or Vanguard Total Bond Market ETF
according to Kashner.
The trend was also seen in January, with the Schwab Short-Term U.S. Treasury ETF
and the iShares 20+ Year Treasury Bond ETF
ranking among the top 10 funds for inflows, she found.
For example, the Schwab Short-Term U.S. Treasury ETF “is what you buy defensively if you want to be in high-quality” fixed income “but you don’t want too much duration exposure,” due to concern about rising rates, she said. And the iShares 20+ Year Treasury Bond ETF, which provides duration exposure, tends to attract investors worried about a recession, according to Kashner.
‘Please have some fixed income’
“Our recommendation to our clients is, unlike last year, ‘please have some fixed income,’” said Crossmark’s Doll. “Then you can fine-tune it, if you want the short or long end” of the bond market’s yield curve.
As Crossmark sees it, “have some of both,” said Doll. “You can get fairly short paper at well over 4%,” he said, and “some appreciation out the curve” should interest rates continue to “trickle down.”
The yield on the 2-year Treasury note
fell to 4.090% Thursday, while 10-year Treasury yields
slipped to 3.396%, according to Dow Jones Market Data.
The yield on the 10-year Treasury note is “a lot more attractive” today compared with a year ago, Doll said. While the rate has fallen below its 52-week high of around 4.2% in October, it remains above its 52-week low of about 1.7% at the start of March, according to Dow Jones Market data.
Bond yields and prices move in opposite directions.
In January, fixed income ETFs raked in around $23.7 billion, while equity ETFs garnered a total of $22.9 billion, according to Kashner. U.S. stocks represented just $2.5 billion of total equity inflows during January, she said.
Within equity inflows, “the big pop was in developed Europe,” said Kashner, pointing to the JPMorgan BetaBuilders Europe ETF. The most of the fund was owned by entities of JPMorgan Chase & Co. as recently as the end of September, according to Kashner. “We also saw a pretty strong showing in emerging markets,” she said.
The iShares Core MSCI Emerging Markets ETF
was up 10.3% this year through Wednesday, while the JPMorgan BetaBuilders Europe ETF gained 10.4%, according to FactSet data. Those gains surpassed the S&P 500’s 7.3% rise over the same period.
China in emerging markets
“China is an enormous part of the emerging-markets basket, so strong performance from China helps” with gains seen this year in an index tracking stocks in emerging markets, said Jason Hsu, chairman and CIO of Rayliant Global Advisors, in a phone interview.
The actively managed Rayliant Quantamental China Equity ETF
was up 12.7% this year through Wednesday, according to FactSet data.
While investors may be cheering China’s abrupt reopening from its zero-Covid policy, Hsu said the potential for monetary and fiscal stimulus in the country, which faces deflation, could be “hugely” positive for Chinese stocks.
“I think that’s the big gun that everyone’s waiting for,” he said.
As for other U.S.-listed ETFs with the biggest inflows in January, the Vanguard Value ETF
iShares JP Morgan USD Emerging Markets Bond ETF
iShares iBoxx $ Investment Grade Corporate Bond ETF
and JPMorgan Equity Premium Income ETF
were also ranked among the top funds, according to FactSet data provided by Kashner.
Meanwhile, U.S. stocks ended mostly higher Thursday, with gains led by the technology-heavy Nasdaq Composite, the day after the Federal Reserve announced that it slowed its pace of interest rate hikes. The Dow Jones Industrial Average
closed 0.1% lower, while the S&P 500
rose 1.5% and the Nasdaq Composite
jumped 3.3%, according to FactSet data.
In his press conference Wednesday, Fed Chair Jerome Powell was “more dovish than most people thought he would be,” helping to fuel gains in the stock market, said Crossmark’s Doll.
See: QQQ ETF jumps as tech stocks rise sharply after Fed Chair Powell’s press conference
As usual, here’s your look at the top- and bottom-performing ETFs over the past week through Wednesday, according to FactSet data.
ARK Next Generation Internet ETF
ARK Innovation ETF
KraneShares Global Carbon Strategy ETF
WisdomTree Cloud Computing Fund
First Trust Nasdaq Clean Edge Green Energy Index Fund
|Source: FactSet data through Wednesday, Feb. 1, excluding ETNs and leveraged products. Includes NYSE, Nasdaq and Cboe traded ETFs of $500 million or greater|
…and the bad
Sprott Asset Management said Thursday that it launched exchange-traded funds focused on “providing investors pure-play exposure to critical minerals essential to the generation, transmission and storage of cleaner energy.” They include the Sprott Energy Transition Materials ETF
Sprott Lithium Miners ETF
Sprott Junior Uranium Miners ETF
and Sprott Junior Copper Miners ETF
Morgan Stanley Investment Management announced Feb. 1 that it launched an exchange-traded-fund platform with the listing of six Calvert ETFs on NYSE Arca. The new ETFs advised by Morgan Stanley Investment Management include the Calvert US Large-Cap Diversity, Equity and Inclusion Index ETF
Calvert Ultra-Short Investment Grade ETF
Calvert US Large-Cap Core Responsible Index ETF
Calvert International Responsible Index ETF
Calvert US-Mid Cap Core Responsible Index ETF
and Calvert US Select Equity ETF
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