Equity-based exchange traded funds were inflows darlings last year, occupying eight of the top 10 spots among asset-gathering ETFs. Fixed income funds impressed as well as 2014 was a record for inflows to bond ETFs.
Half of that theme is prevailing again in 2015 following a volatile January that brought an unexpected bout of volatility for equities and declines for the S&P 500. What was bad news for equity ETFs last month was good news for their fixed income counterparts.
“As such, while equities were the shining star in the last month of 2014, the same cannot be said about their start to the 2015 campaign as investors pulled nearly $15.8 billion in January. Taking charge was fixed income with over $7.9 billion of inflows as yields continued to fall. If the first month of flows is any indication for the fixed income universe of ETFs, 2015 could be even better than 2014. At this current pace, the yearly total would be $96 billion, which would be $41 billion more than the 2014 total,” said State Street Vice President and Head of Research Dave Mazza in a new research note.
While investors yanked $15.77 billion from equity ETFs last month, $7.97 billion poured into bond funds. Currently, five bond ETFs rank among the top 10 asset-gathering ETFs on a year-to-date basis. Through Feb. 5, the leader of that quintet was the iShares Short Treasury Bond ETF (NYSEArca: SHV) with $2.5 billion of 2015 inflows, $2 billion of which arrived in just one day. [Big Inflows to Short-Term Bond ETF]
All was not lost of equity ETFs last month. Sector funds remain favored destinations for advisors and investors. ETFs tracking eight of 11 sectors (counting real estate as its own sector) saw inflows last month with financial services, industrials and consumer discretionary the only groups to see outflows.
“At the sector level, health care continued to be top of mind for investors. Late-cycle sectors like energy and materials were in favor as well. The financial sector fell the most out of favor with investors as the flattening of the yield curve and the prospects for higher rates being kicked further down the road have weighed on this market segment,” adds Mazza.