ETF Industry on Pace for Another Record Year

MarketsETF Trends

The exchange traded fund industry has hit 2018 running after experiencing another record month of inflows.

U.S.-listed ETFs have attracted $78 billion in net inflows in January, the highest monthly inflow ever, breaking the previous record of $59 billion set back in November 2016, according to a State Street Global Advisors research note.

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Looking at the investment breakdown, investors continued to pile into equities as stock ETFs bringing in 86% of overall flows in January with a robust $67 billion, which was also a record single-month tally.

Among sector bets, investors focused on technology ETFs, which attracted over $3.7 billion in January, followed by industrials with $2.7 billion, financials with $1.5 billion and energy with $1.2 billion.

Meanwhile, bond ETFs still brought in $9.1 billion for the month, despite rising interest rate concerns and yields on benchmark 10-year Treasuries pushing higher.

Looking ahead, Matthew Bartolini, Head of SPDR Americas Research State Street Global Advisors, argued that the forward trajectory of the ETF industry looks solid as long as three leading factors persist, including a coordinated global economic growth, low volatility of global economic data and positive global earnings revisions.

However, Bartolini still warned about potential bumps and risks down the road that could upend the markets, so investors should be properly diversified to limit risks while still having a toe in the markets.

“Depending upon policy decisions, how earnings proceed and the current state of political schadenfreude plays out, there may be times when the markets’ skis hit an icy patch and blow out the edges a bit,” Bartolini said.

Furthermore, Bartolini also saw opportunities in international equities, and more investors are diversifying into global markets through country-specific ETF picks to better manage their exposures.

“As the global synchronized growth story continues, this trend may continue. Furthermore, the EM segment should continue to be supported by a weak dollar, higher commodity prices and a resurgence in global trade. Stretched valuations in the US make this even more attractive on a relative basis,” Bartolini said.

Nevertheless, U.S. investors with a large home bias may want to focus on larger companies. Large companies continue to beat small-caps, and most of the January inflows also reflect a greater large-cap preference among ETF investors.

“This trend is indicative of the markets’ view on the impacts of tax reform (favoring corporations more than consumers), as the more globally oriented large-caps have also outperformed the more domestically focused small-caps by 3.2 percent since the bill was passed,” Bartolini added.

For more information on the ETF industry, visit our ETF performance reports category.

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