- With stocks and bonds off to their worst start to a year ever, headline sentiment and investor buying behavior has become impaired.
- June flows were below average, capping off the weakest quarter of investment since the onset of the pandemic.
- The percentage of ETFs with inflows also fell below historical levels, further signaling a lack of conviction.
In the seminal 1966 surfing documentary, The Endless Summer, Bruce Brown follows two young surfers around the world in search of the perfect wave. In 2022, investors are likely to catch anything-but-perfect waves during an endless summer of volatility.
Traditional stocks and bonds are already off to their worst-ever start to a year, meaning the standard 60/40 portfolio, down -16%, is as well.1 For this asset allocation model, its returns for the first six months of 2022 rank sixth all-time based on rolling six-month returns dating back to 1977.2 Only periods during the Great Financial Crisis rank worse.
Continued rate hikes, inflation, geopolitical conflict, and waning growth — the catalysts creating our current choppy conditions — are all reasons for this likely endless summer of volatility. Partisan conflict, due to emerging US mid-term election headlines, could knock markets off course even further.
Given this backdrop and poor return environment, flow trends indicate a lack of investor conviction to start the summer.
Buying Behavior Weakened
The $37 billion of inflows sits 30% below the recent 36-month average. Combined with weak flows in May, the second quarter flows totaled just $91 billion.
This is the lowest quarterly figure since the onset of the pandemic (Q1 2020), 53% below Q4 2021 and 30% below the five-year quarterly average figures. This made the first half flows frail as well, totaling just $287 billion — the lowest figure since the first half 2020 and a 40% decline from the first half of 2021.
Quarterly Fund Flows
The $34 billion of equity flows last month were below their 36-month average (+$35 billion). Magnitude was weak, but so was the breadth of flows. Only 51% of all equity funds had inflows in June, a hit rate well below the historical 63% median. The participation rate was also subpar, indicating a significant lack of conviction from investors — a view not all that surprising given the lousy market returns so far this year.
While the pace of equity flows fell below average, the more startling drop came from bond ETFs. In May, bond ETF flows were the second most ever. Yet in June, the inflows of $5 billion rank 98th all-time and sit 66% below the trailing 36-month average. The drop in bond flows stems from significant weakness in credit sectors.
Asset Class Flows
1 Bloomberg Finance, L.P., as of June 30, 2022. Based on the return for the MSCI ACWI IMI Index and the Bloomberg US Aggregate Bond Index of a portfolio weighted 60% to equities and 40% to bonds.
2 Bloomberg Finance, L.P., as of June 30, 2022.
S&P 500® Index
A market-capitalization-weighted stock market index that measures the stock performance of the 500 largest publicly traded companies in the United States.
MSCI ACWI Index
A market-capitalization-weighted stock market index that measures the stock performance of the companies in developed and emerging markets.
Bloomberg US Aggregate Bond Index
A broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market.
Originally Posted July 7, 2022 – June Flash Flows: Investors Start Summer Lacking Conviction
The views expressed in this material are the views of the SPDR Research and Strategy team and are subject to change based on market and other conditions. It should not be considered a solicitation to buy or an offer to sell any security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. There is no representation or warranty as to the current accuracy of such information, nor liability for decisions based on such information. Past performance is not a reliable indicator of future performance
Unless otherwise noted, all data and statistical information were obtained from Bloomberg LP and SSGA as of June 30, 2022. Data in tables have been rounded to whole numbers, except for percentages, which have been rounded to the nearest tenth of a percent.
The research and analysis included in this document have been produced by SSGA for its own investment management activities and are made available here incidentally. Information obtained from external sources is believed to be reliable and is as of the date of publication but is subject to change. This information must not be used in any jurisdiction where prohibited by law and must not be used in a way that would be contrary to local law or legislation. No investment advice, tax advice, or legal advice is provided herein.
Investing involves risk including the risk of loss of principal.
Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.
Equity securities may fluctuate in value in response to the activities of individual companies and general market and economic conditions.
Concentrated investments in a particular sector or industry tend to be more volatile than the overall market and increases risk that events negatively affecting such sectors or industries could reduce returns, potentially causing the value of the Fund’s shares to decrease.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.
Disclosure: Interactive Brokers
Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from State Street Global Advisors and is being posted with permission from State Street Global Advisors. The views expressed in this material are solely those of the author and/or State Street Global Advisors and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.
Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.
Any discussion or mention of an ETF is not to be construed as recommendation, promotion or solicitation. All investors should review and consider associated investment risks, charges and expenses of the investment company or fund prior to investing. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.