State Street Report: $15 Billion Goes Into Fixed Income ETFs

Worries of global growth as a result of the U.S.-China trade war saw investors opt for more safety via bonds. As a result, fixed income exchange-traded funds (ETFs) saw $15 billion in in inflows, according to the latest report from State Street Global Advisors.

“The month of September saw trade tensions subside, albeit slightly given the cancellation of a trip by Chinese delegates to US farms mid-month and the latest information surrounding the potential for a curb of Chinese investment by US investors,” wrote Matthew Bartolini, Head of SPDR Americas Research at State Street Global Advisors. “While that latest news has already been refuted, it shows the fragile nature of the negotiations. Nonetheless, with a slight reprieve from trade, the Fed cutting rates and the European Central Bank (ECB) following suit as well as enacting a fresh round of bond buying, investors deposited a 2019 high of $31 billion into equity funds during the month.”

“But it was not all keep calm and let risk be on, as fixed income ETFs garnered $15 billion worth of assets during the month,” Bartolini added. “This raised their 2019 total past $100 billion and puts them on a pace that is 8% higher than their record 2017 haul. So far this year, fixed income ETFs have expanded their asset base by 17% to over $800 billion.”

Key report figures:

  • Fixed income ETFs have now amassed over $112BN of inflows YTD – a pace that’s 8% higher than the record-setting haul in 2017;
  • Investors deposited nearly $9BN into gold-backed ETFs in Q3 – this quarterly haul represents the second largest ever; only during the global financial crisis did gold-backed ETFs accumulate more inflows;
  • The $30BN of inflows for equity ETFs in September marked a sharp reversal from August’s $20 billion of outflows and represents the largest one-month change ($50BN) for equity ETF flows ever;
  • With rates continuing to fall, investors increased their exposure to Real Estate ETFs, which led all sectors with $1.3BN of inflows.  Health Care ETFs led the pack on the downside, shedding over $1BN during the month.

Where did investors head specifically when it came to fixed income funds? It seems they opted to go long.

“Government bond maturity-based flows skewed towards the long end of the curve, as the short end endured sizable outflows in the month of September,” wrote Bartolini. “Because one fund made up the lion’s share of those outflows, drawing broad-based conclusions can be difficult. Nonetheless, the inflows into the long end indicate investors feel the curve will likely remain flat, even as the Fed tries to reignite growth and inflation through more accommodative monetary policy.”

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