January ETF inflows had a case of bipolar disorder thanks to the coronavirus outbreak. At one point, it looked like the markets were building off a strong 2019 before the virus hit, but nonetheless, sectors like technology came out the start of 2020 with strong inflows.
“Similar to the trend we have witnessed throughout, it was a tale of two halves,” wrote Matthew Bartolini, Head of SPDR Americas Research, in a Monthly Flash Flows report by State Street Global Advisors. “The first half of the month saw sizable inflows into sectors. At one point, there was over $8 billion into sector-related strategies – a January record. However, once growth fears stemming from the Coronavirus took hold of market sentiment, outflows began. Ultimately, $3 billion of outflows occurred since the intra-month peak.”
Even amid the extended bull run where FAANG stocks (Facebook, Amazon, Apple, Netflix, Google) are being questioned as pricier than their valuations reflect, technology was still able to come out on top. So while investors are wondering whether the FAANGs will suffer the same fate as tech stocks in the early 2000s during the ill-fated Dot.com bubble, the sector forges on.
“The month ended mixed across sectors, with Technology and Consumer Discretionary segments, even with their sizable footprint overseas, taking in the most assets,” Bartolini wrote. “The positivity is likely stemming from strong earnings reports so far, as those two sectors have had 90% and 84% of firms beating estimates, respectively, compared with just 69% for the broader market.”
ESG Still A Disruptor or Now a Standard?
One ensuing trend that continues to persist whether markets are up or down is the continued rise of environmental, social and governance (ESG). When ESG came on the scene, it was questioned as merely a thematic, niche ETF trend, but as more investors clamor for ESG initiatives, will it eventually become standard fare?
“Active funds surpassed $100 billion in assets after taking in $5 billion last month, 82% of which went into active fixed income strategies,” Bartolini noted. “That is slightly more than their market share, as active fixed income ETFs make up 79% of all active ETF strategies.”
“ESG strategies, however, took in the second most last month and have raised their trailing one-year total to $14 billion, pushing overall assets close to $30 billion,” he added. “Along with active, fixed income, and low-cost exposures, ESG may be one of the secular drivers of flows that are not 100% market direction dependent, a trend worth watching in 2020.”
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