Equity ETF Inflows Hit $32.5 Billion in February

The exchange-traded fund sector continues to be the darling of investors.

Against the backdrop of the S&P 500 Index up 3.7% in February and 5.6% year-to-date (as of 2/28/17), investors continued to turn to ETFs to increase their equity exposure, as $32.5 billion of net new assets flowed into equity ETFs during the month, according to the US ETF Flash Flows report from State Street Global Advisors.

The report also noted that equity ETFs have now recorded four consecutive months with over $20 billion of inflows.

With almost every corner of the equity map moving higher, from the US to developed to emerging, equity fund inflows continued, SSGAs Matthew Bartolini, Head of SPDR Americas Research, SPDR ETFs and SSGA Funds wrote. Equity flows have now notched four consecutive months with over $20 billion of inflows. Based on these levels, there is still quite a lot of risk-seeking by investors.

Bartolini added that for the first time in a while, all major equity regions recorded inflows for the month. The US continues to be the favored region for investors, with over $22 billion deposited in the month of February, after taking in $15 billion in January.

The International-Broad category, however, is more intriguing with over $16 billion of inflows so far in 2017, Bartolini wrote. This segment has been led by flows into emerging market focused funds, with nearly $3 billion of inflows in February alone.

The interest in emerging markets space, he continued, contradicts the market narrative predicated by the Trump Trade of; higher rates, a stronger dollar, and the new administrations protectionist trade stance. However, after initially increasing post-election, both the dollar and interest rates have fallen, and the administration has begun to walk back a bit of the protectionist rhetoric from the campaign trail. For instance, China has not been labeled a currency manipulator and Trump has embraced the One China policy.

In sum, this has been a bit of a tailwind for emerging market equities, which are up over 8 percent to star the year, and outperforming both developed and US equities.

Amid these strong equity flows, bond ETFs continued to accumulate assets, attracting $12.3 billion of inflows in February. Corporate bond ETFs dominated, attracting nearly $5.9 billion in February, while aggregate exposures took in over $2.4 billion.

Also, on the sector level, Financial ETFs led with $2.7 billion of inflows during the month. Materials ETFs and Technology ETFs were also favored, attracting $1.9 billion and $1.4 billion, respectively.