January 2024 is likely to be remembered for the strong launch of 10 new spot bitcoin ETFs and the uplisting of the Grayscale Bitcoin ETF (GBTC). While we continue to support advisor education about cryptocurrency investing, there are other ETF trends emerging in the first few weeks of the year. Some of these are already part of the Exchange conference agenda.
Investment-Grade Corporate Bonds Are in Vogue
It was a tough 2023 for intermediate-term bond ETFs in a rising rate environment. However, these ETFs have been much more popular to start 2024, with rate cuts likely on the horizon. Intermediate-term bond ETFs take on some interest rate, while offering high-quality bond exposure.
The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) had $4.9 billion of net outflows in 2023. However, all of this and more flowed into LQD in the beginning of the new year. The fund had net inflows of $5.5 billion year to date as of January 17, boosting its asset base to $37 billion. LQD has an average duration of approximately eight years and sports an SEC yield of 5.0%.
The Vanguard Intermediate Term Corporate Bond ETF (VCIT) had net outflows of $650 million through the first nine months of 2023. Yet as investors gained more comfort about potential rate cuts late last year, VCIT gained traction. The ETF had net inflows of $4.2 billion in the fourth quarter. In the first few weeks of 2024, VCIT gathered an additional $870 million. The fundnow manages $46 billion. I’m excited that Jeff Johnson, Vanguard’s head of fixed income product, will be on stage Monday at Exchange next month with Bloomberg’s Katie Greifeld.
The Invesco BulletShares 2028 Corporate Bond ETF (BSCS) pulled in over $150 million to start 2024, which is impressive for a $1.4 billion offering.
Financials in Focus
The Financial Select Sector SPDR (XLF) was slightly out of favor with investors in 2023. The widely held sector ETF had $85 million in net outflows. But in the initial days of 2024, sentiment significantly improved. The fund added $675 million of new money and manages $35 billion in assets.
The iShares US Financials ETF (IYF) and the SPDR S&P Bank ETF (KBE) also saw modest net inflows. The demand occurred as the start of earnings season was kicking off, led by large-cap banks. “Non-GAAP EPS results from the six major US banks all came in better-than-expected for Q4,” explained Christine Short, head of research, Wall Street Horizon. “Furthermore, forward-looking guidance for 2024 was mostly upbeat. Many banks expect they can continue to count on exceptionally high levels of net interest income to pad their bottom lines.”
XLF and IYF take a market-weighted, industry-diversified approach to the sector. However, they have hefty stakes in these banks. KBE is an equally weighted, industry-targeted alternative.
Gold Continues to Lose Its Luster
Despite gaining in value in 2023, gold ETFs collectively had net outflows. Unfortunately, the trend has persisted to start 2024. The SPDR Gold Shares (GLD) has $57 billion in assets but has been bleeding. The largest commodity ETF had $1.1 billion in redemptions in the first few weeks of 2024 on the heels of net outflows in 2023 of $2 billion. Gold ETF peers like the iShares Gold ETF (IAU) and the SPDR Gold MiniShares (GLDM) had more modest redemptions.
Gold has declined in value thus far in January, but the weak sentiment could also be due to the emergence of 10 spot bitcoin ETFs. Some ETF-minded investors might prefer digital gold as an alternative to stocks and bonds. It will be worth watching these trends in the month leading up to Exchange. Hope to see you there.
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