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November ETF Flows: Getting Closer to the End of the Tunnel

By:

Head of SPDR Americas Research

  • Investors deposited $90+ billion into ETFs last month, with $81 billion going to equity funds
  • Sector-focused ETFs posted strong monthly inflows, largely driven by cyclicals
  • Flows into funds focused on innovative trends took in $7 billion

The market breathed a heavy sigh of relief after two headwinds were essentially removed at the same time: election uncertainty was resolved, and hope emerged for a humanitarian resolution to the pandemic.

The pandemic, however, has brought about a significant amount of change, disruption, and loss, and we are not yet out of the woods. COVID-19 case rates continue to increase and are now past levels seen during the onset of the pandemic.1 Jobless claims in the US recently rose for two consecutive weeks for the first time since July.2 Yet, global equity markets are at record highs and the standard 60/40 portfolio is poised once again to post double-digit returns (up 10%).3

While the market breathed a sigh of relief in November, it may have to periodically hold its breath until the vaccines have been broadly administered and case rates fall precipitously alongside an uptick in more consistent economic growth. We are likely embarking on a period of recovery, but we will also still be adjusting to the continued evolution of corporate and consumer behaviors resulting from the crisis. For investors, the next few months may feel like staring at the end of a long tunnel, looking forward to being on the other side of an unimaginable mess.

Asset class ETF flows: Breaking records

With the market striking a decidedly risk-on tone, investors turned to ETFs to implement positions quickly and with precision. In November, ETFs gathered $94 billion of inflows—a record monthly high. This one-month record haul accounts for 21% of the full-year 2020 total, a figure that is now only $14 billion shy of 2017’s $456 billion annual record flow figure. Based on the five-year December average flow total of $50 billion, it seems 2020 is likely to set a record for full-year flows.

Given the strength in equity markets, equity ETFs were the main beneficiary as investors sought to deploy cash that may have been sitting on the sidelines. Equity ETFs saw inflows of $81 billion, as shown below, which was enough to overtake fixed income in terms of year-to-date flow totals.

Fixed income ETFs continued to benefit from a secular shift into the asset class, even though the tone switched from defense to offense quite significantly. The $17 billion accumulated in November marks the tenth month of inflows greater than $10 billion for bond ETFs. As a result, it is highly likely the category will surpass $200 billion in annual flows for the first time. A high estimate would be $208 billion of inflows by year-end (based on the one-year monthly flow average figure) with a low estimate of $201 billion (based on the five-year average monthly flow figure).

asset class etf flows

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Footnotes

1 “Covid-19: Pandemic Shatters More Records in U.S., as States and Cities Tighten Restrictions”, New York Times, 11/15/2020
2 “U.S. Recovery More Tenuous as Jobless Claims Rise, Incomes Fall”, Bloomberg, 11/25/2020
3 Based on the total return for the MSCI ACWI IMI Index and the Bloomberg Barclays US Aggregate Bond Index
4 The S&P Banking Select Industry Index has a 0.55 correlation to the US 10-year yield from 11/30/2015 to 11/30/2020
5 Bloomberg Finance L.P. as of 11/30/2020, based on calculations by SPDR Americas Research

Glossary

Bloomberg Barclays US Aggregate Bond Index: A benchmark that provides a measure of the performance of the US dollar denominated investment grade bond market, which includes investment grade government bonds, investment grade corporate bonds, mortgage pass through securities, commercial mortgage backed securities and asset backed securities that are publicly for sale in the US.

MSCI ACWI IMI Index: a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. It covers c.9000 securities across large, mid and small cap size segments and consists of c.45 country indices, of which approximately half are developed and half are emerging markets.

S&P 500 Index: A stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States.

Originally Posted on December 4, 2020 – November ETF Flows: Getting Closer to the End of the Tunnel

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