Takeaways From October ETF Flows

U.S.-listed ETFs added $91 billion in new assets last month, driven by $52 billion in U.S. equities and $32 billion in fixed income, with six of the top 10 ETFs by October flows focused on bonds. Big S&P 500 index ETFs and other broad stock market exposure strategies were some of the biggest gainers, with the likes of the SPDR S&P 500 ETF Trust (SPY A-) and iShares Core S&P 500 ETF (IVV A) picking up $13.9 billion and $4.4 billion respectively for October.

Should markets endure this additional hike, buoyed by yet more bullish data from manufacturing and labor sectors, October ETF flows could offer some signals to track as a wild, whirlwind 2022 starts to wind down. Here are three takeaways to look out for as November hits its stride.

ESG has become a hot-button topic this year in asset management, with conservative political commentators calling for more shareholder voting power and criticizing ESG’s perceived impact on markets via large index funds. ESG managers have also contended with ongoing questions regarding the true meaning of ESG with major names like DWS in trouble for alleged greenwashing.

ESG ETFs did not light up the scoreboard for October, with the iShares ESG Aware MSCI USA ETF (ESGU B+) seeing the third largest net outflows among U.S. equity ETFs at -$1.5 billion. That takes ESGU into YTD outflows, as well, with the strategy possibly a victim of a growing so-called “ETF backlash.”

Investors may have environmental as well as financial reasons to invest in ESG strategies but should pay attention to the discourse surrounding ESG for the rest of this year and into early 2023.

Gold ETFs were split for the month as a rising rate environment may have driven investors toward higher yield opportunities. While rising interest rates do not always augur negative outcomes for gold, the SPDR Gold Shares ETF (GLD B) and the iShares Gold Trust (IAU B-) saw -$996 million and -$1.1 billion in net outflows respectively, the greatest outflows among gold strategies.

While gold had a difficult October, the valuable mineral did have one bright spot as the VanEck Gold Miners ETF (GDX B+) saw $514 million in October net inflows, almost overtaking its YTD net outflows of $120 million. Investors may want to keep their eyes on the gold strategies like the Sprott Gold Miners ETF (SGDM B-) as well for another route into gold mining following October ETF flows.

Fixed income had some serious inflows as the market continued to shift under the Fed’s rising rate agenda in October. Standing out from the fixed income pack were high-yield bond ETFs as investors took a more adventurous approach to their fixed income holdings last month.

ETFs like the SPDR Bloomberg High Yield Bond ETF (JNK A-) saw big gains relative to their YTD flows, with JNK adding $3.1 billion in new assets, almost half of its $8.5 billion AUM. That October number also takes the strategy over the top YTD into positive territory with $221 million in YTD inflows. The iShares iBoxx $ High Yield Corporate Bond ETF (HYG A-) also saw notable net inflows of $1.7 billion in October.

While those strategies prospered, the news in corporate bond ETFs was more mixed – the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD A) saw October’s largest fixed income inflows with $3.7 billion for the month, of interest both for its liquidity and as a long term hold of safer bonds.

The Vanguard Short-Term Corporate Bond ETF (VCSH A) meanwhile saw the largest net outflows in U.S. fixed income ETFs with -$2.6 billion in net outflows. Investors should consider specializing in the right fixed income style boxes as this corner of the ETF space rebounds and watch for the continued interplay between rates and the prospect of a recession.

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