Some advisors are taking a tactical approach to investing. Many others are strategic and making 3-4 allocation changes a year. A third of the way through the year is a good time to check out ETF flows. At the end of April, U.S.-listed ETFs gathered approximately $360 billion of new money.
The flows were slower in April than the prior months, with “just” $62 billion added. However, the industry’s 2024 record of $1.1 trillion could easily be broken.
In April, ETF investors had to deal with global trade war volatility and concerns about the consumer and a slowing U.S. economy. They turned to defensive-oriented ETFs and pulled away from many riskier styles.
“Who knew that volatility, jitters, concerns, uncertainty would actually make us invest more, not less, in ETFs?” noted Cinthia Murphy, TMX VettaFi investment strategist. “But that’s what we are seeing this year.” Watch the video to hear and see more from Murphy and me.
Playing Defense With ETFs
According to State Street Global Advisors research, gold ETFs had their 10th-best month for net inflows, with $3.8 billion. The SPDR Gold Shares ETF (GLD ) added $1.0 billion. Investors also turned to actively managed derivative income and defined outcome ETFs. These options based ETFs gathered $4.0 billion and $1.2 billion, respectively.
Meanwhile, low volatility ETFs gathered $850 million in April. This ended a 23-month run of consecutive net outflows for the smart-beta category. Matthew Bartolini, head of Americas ETF Research at State Street Global Advisors, noted “that all it took was a complete redesign of the global macroeconomic paradigm."
Flight to Safety in Fixed Income
Fixed income ETFs pulled in $13 billion, with $19 billion flowing into short-term government bond ETFs like the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL ) and the iShares 0-3 Month Treasury Bond ETF (SGOV ). Meanwhile, municipal bond products gathered $2.8 billion. However, many pulled back on their risk-taking in the fixed income category..
The $5.4 billion out of bank loan & CLO ETFs was the worst month ever, according to Bartolini, as was the $4.6 billion from investment-grade corporates. High yield’s $4.7 billion was the fifth-worst. These flows are a complete reversal of the trend leading up to April, as investors were visibly overweight credit, reflecting a bias toward an environment of rising growth according to State Street Global Advisors.
Reducing Equity Risk Via ETFs
Within equities, April’s $4.2 billion net outflows from single-country China equity ETFs was the second-worst ever. While trade tensions with other countries might be improving, this did not seem to be the case with China as April ended.
Meanwhile, energy and financial U.S. sector ETFs had approximately $5 billion of redemptions as investors. Revenues from top companies in these sectors would be negatively impacted by tariffs, causing investors to pare back.
Core US Equity Exposure Remains in Demand
The good and bad news from above is largely due to tactical moves made by some investors. However, the actions by what I think of as other strategic investors gives me confidence. The Vanguard S&P 500 ETF (VOO ) added $21 billion in April. Its $56 billion of net inflows in the first four months sets it up to possibly break its own $116 billion record for calendar inflows with months to spare.
Meanwhile, the Vanguard Total Stock Market (VTI ) and the SPDR Portfolio S&P 500 ETF (SPLG ), two other low-cost broad U.S. equity ETFs, were also scooped up in April. VTI and SPLG added $4.5 billion and $3.4 billion, respectively. Combined they have $25 billion of net inflows for the year.
ETFs have become the go-to vehicle for many advisors and their end-clients. Volatility can create buying opportunities for some. However, for others, it is a chance to realign their portfolios to reflect the risk-off environment. I’m excited VettaFi has a front-row seat to comment.
For more news, information, and analysis, visit VettaFi | ETFDB.
