June Flash Flows: Investors Start Summer Lacking Conviction

By:

Head of SPDR Americas Research

  • 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

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

Asset Class Flows

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Footnotes

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.

Glossary

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

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