U.S. ETF Equity Flows Hit $50 Billion in November: SSGA

Highlights from the SSGA report include:

• Equity ETFs brought in nearly $50 billion in November-the single largest monthly fund flow total for equity funds. Bond ETFs attracted $2.8 billion of inflows in November, despite bonds losing more than $1.7 trillion in market value during the month.
• Government bond ETFs recorded net outflows of nearly $2.3 billion in November while Treasury Inflation Protected Securities (TIPS) attracted over $2.3 billion.
• Prior to the Trump victory, financial ETFs had net outflows of $5 billion on the year; since then, they have attracted $8.2 billion of inflows and are now in the black by close to $3 billion YTD. Industrials and Health Care ETFs were also favored by investors in November attracting approximately $4.6 billion and $2.6 billion of inflows, respectively.

• David B. Mazza, Head of Research, SPDR ETFs and SSGA Funds & Matthew Bartolini, CFA, Senior Research Strategist, SPDR ETFs and SSGA Funds told Traders Magazine that immediately after the election the US stock market went into a ‘Trump Jump’, while bond markets and global stocks threw a ‘Trump Tantrum’.

  “Rotations of all sorts ensued post-election, and some have persisted into month end as investors have begun to coalesce around the idea of monetary policy handing the baton to fiscal policy – of which those policies are expected to be pro-growth, pro-spending, and, as proposed, protectionist,” Mazza and Bartolini wrote. Welcome to the New Abnormal.”

  Some of the biggest rotations were felt in stocks, they added. Value outpaced growth, the US beat the rest of the world, and US small-caps thumped large-caps. The dollar, which languished earlier in the year, surged on the prospect of increased infrastructure spending, higher rates, lower taxes, and higher inflation. The trade-weighted dollar is near highs not seen since 2002, and is now more than one standard deviation over its long term average dating back to 19731 .

  Bonds lost more than $1.7 trillion in market value during the month2 , as yields surged due to increased inflationary expectations and the probability of a US rate hike in December hitting 100% 3 . This spike in US rates has led to a divergence in global yields, evidenced by the spread between the US 10 Year and the German 10 Year Bund sitting at a 27 year high3 .

  “With 2017 on the horizon, and even as US stocks are surging ahead with consumer confidence at 9 year highs, uncertainties still remain, demonstrated by a gauge of economic policy uncertainty hitting a 3 year high,,” the two wrote. “Perhaps that is why the CBOE SKEW Index, a measure of tail risk hedging, remains elevated even as realized volatility is low. Looking ahead to likely outcomes such as higher rates and a stronger dollar, investors may want to favor more domestically oriented segments of the US market as firms with less than 25% foreign sales posted an average 4.7% earnings per share growth rate over the last nine quarters, versus a 0.8% rate for firms with foreign sales higher than 25%6 . This would lead to a higher allocation to small-caps, and industries like retailers, transportation, and regional banks – the latter of which is also a potential beneficiary of higher rates as a well.”