MW ETFs see 'monumental' flows after U.S. election, shattering previous record
By Christine Idzelis
Fed's easing, combined with expansionary fiscal policy expected under Trump, is 'perfect recipe for a no-landing scenario' for the economy, says Bob Elliott of Unlimited Funds
Hello! This week's ETF Wrap brings you a breakdown of the record-setting capital that State Street Global Advisors saw investors pour into U.S.-listed exchange-traded funds the day after the presidential election.
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Investors rushed into exchange-funds after Donald Trump won the race to become the 47th president of the U.S., particularly seeking exposure to the country's stock market.
A "monumental" $22 billion flowed into U.S.-listed ETFs on Wednesday, said Matthew Bartolini, head of Americas ETF research at State Street Global Advisors, in a phone interview. He said that marked record inflows for the day after a U.S. presidential election, "shattering" the previous $4 billion record inflow seen in 2020 on the day after President Joe Biden was elected.
The inflows reflected a "risk-on" investment mentality, he said. "It was like the market just got a bunch of candy and took off."
Investors on Wednesday poured $17 billion into ETFs targeting U.S. equities, while pulling capital from those focused on international equities, he found.
Within U.S. equity ETFs, around $14 billion flowed into exposures including large caps and small caps and investing styles such as "value" and "growth," according to Bartolini. The SPDR S&P 500 ETF Trust SPY, which tracks the U.S. large-cap stock index, attracted the most capital, raking in more than $4 billion on Wednesday, he said.
Sector-focused U.S. equity funds had inflows totaling more than $3 billion, according to his tally.
The two biggest drivers of flows into sector ETFs on Wednesday were financials and industrials, Bartolini found, which are cyclical areas of the market that may benefit from economic growth.
By contrast, sector ETFs focused on traditionally defensive areas of the stock market, including utilities, consumer staples and healthcare, saw combined outflows on Wednesday, he said.
Among funds attracting the biggest inflows Wednesday was the Financial Select Sector SPDR Fund XLF, which provides exposure to the S&P 500's financial stocks, said Bartolini. The fund took in around $1.6 billion, he found. Investors that same day added about $1.3 billion to the SPDR S&P Regional Banking ETF KRE, which represented around a third of its total assets under management just the day before, Bartolini estimated.
Shares of the SPDR S&P Regional Banking ETF, which tracks an index of bank stocks, skyrocketed 13.4% on Wednesday, FactSet data show.
A Trump administration would likely mean less regulation for the "heavily regulated" banking industry, which should benefit balance sheets and return on equity, according to Bartolini. Plus, inflationary aspects of the President-elect's anticipated policies may lead to a steeper yield curve benefiting banks' net interest margins - all of which builds on the industry's "positive" earnings results in the most recent quarter, he said.
Investor appetite for risk-taking also showed up in the $4 billion of bond ETF inflows on the day after the U.S. election, according to Bartolini.
High-yield corporate-bond ETFs and funds targeting leveraged loans each took in around $700 million, he said. High-yield bonds and leveraged loans are forms of junk-rated corporate debt.
Investors also contributed around $1.8 billion into government-bond ETFs on Wednesday, most of which targeted long durations of 10 years or more, according to Bartolini.
The motivation for that is hard to tell, he said, adding that it could be investors spotting a buying opportunity after a rally in yields that day sent bond prices lower. Or, he said, the inflows may reflect a short strategy on the part of investors betting that prices of long-term Treasurys may fall.
'Perfect recipe for a no-landing scenario'
On Thursday, Treasury yields ended lower after the Federal Reserve announced its decision to lower its policy interest rate by 25 basis points to a range of 4.5% to 4.75%, citing the "solid pace" of economic activity in the U.S. and inflation making progress to its 2% target.
The 10-year Treasury yield BX:TMUBMUSD10Y fell 8.4 basis points Thursday to 4.341%, while the 2-year Treasury rate BX:TMUBMUSD02Y declined 5 basis points to 4.217%, according to Dow Jones Market Data.
The U.S. stock market closed mostly higher Thursday, with the S&P 500 SPX gaining 0.7%, the Nasdaq Composite COMP rallying 1.5% and the Dow Jones Industrial Average DJIA finishing about flat. All three major benchmarks had climbed sharply Wednesday on the U.S. election results.
The combination of the Fed easing its monetary policy and the next White House administration's anticipated pursuit of expansionary fiscal policy is "the perfect recipe for a no-landing scenario" for the U.S. economy, said Bob Elliott, chief executive officer and chief investment officer of Unlimited Funds, in a phone interview. Under such a scenario, he explained that the U.S. economy keeps expanding with inflation remaining above the Fed's target.
Prospective policies from the President-elect may result in tax cuts, deregulation and larger deficits - which mostly aligns with "a pro-growth impulse" for the economy, according to Elliott.
That's what the market seemed to reflect on Wednesday, but stocks, and to some extent bonds, didn't appear to be pricing in the inflationary effects of potentially more tariffs under a Trump administration, he said. To Elliott's thinking, the market seemed to view tariffs as "campaign rhetoric rather than realistic policy."
As usual, here's your look at the top- and bottom-performing ETFs over the past week through Wednesday, according to FactSet data.
The good...
Top performers %Performance YieldMax COIN Option Income Strategy ETF 28.2 SPDR S&P Regional Banking ETF 13.8 ARK Innovation ETF 13.6 First Trust RBA American Industrial Renaissance ETF 12.7 SPDR S&P Bank ETF 12.0 Source: FactSet data through Wednesday, Nov. 6. Start date Oct. 31. Excludes ETNs and leveraged products. Includes NYSE-, Nasdaq- and Cboe-traded ETFs of $500 million or greater.
...and the bad
Bottom performers %Performance AdvisorShares Pure US Cannabis ETF -24.7 Invesco Solar ETF -6.5 VanEck Junior Gold Miners ETF -5.0 iShares Silver Trust -4.6 iShares MSCI Global Gold Miners ETF -4.5 Source: FactSet data
New ETF
Charles Schwab's asset-management arm said Thursday that it plans to launch the Schwab Mortgage-Backed Securities ETF $(SMBS.UK)$ on or around Nov. 19. The fund will have an expense ratio of 0.03%, the firm said.
Weekly ETF reads
-- Dow soars as these areas are 'likely market winners' of potential Republican sweep (MarketWatch)
-- Global ETFs slide as investors see Trump tariff policies hurting trade (CNBC)
-- Record iShares Bitcoin ETF Volume Adds to Crypto's Historic Run (Bloomberg)
-- Trump Win Gives Altcoin ETFs 'Fighting Chance' Under New Regime (Bloomberg)
-- Vanguard deposes BlackRock as provider of world's second-largest ETF (Financial Times)
-Christine Idzelis
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November 07, 2024 19:23 ET (00:23 GMT)
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