By Christine Idzelis
Hello! Market volatility remains elevated after last month outflows in exchange traded-funds listed in the U.S. for the first time in almost three years, according to State Street Global Advisors. In this week’s ETF Wrap you’ll see some of the bright spots in last month’s rough patch and this year’s market tumult.
May is off to a shaky start, with the U.S. stock market tumbling Thursday as bond yields rose.
In April, investors withdrew a net $10.5 billion from U.S. listed exchange-traded funds, snapping a 34-month stretch inflows, according to a State Street Global Advisors report. Equity ETFs suffered, with funds focused on U.S. stocks seeing a record $28 billion of outflows as “systematic investors de-risked,” State Street said in the report.
But April’s equity outflows are perhaps not as bad as they first appear, according to Todd Rosenbluth, head of research at ETF Trends. Unusually large outflows that iShares Core S&P 500 ETF /zigman2/quotes/204263249/composite IVV +1.45% and Vanguard S&P 500 ETF /zigman2/quotes/201209218/composite VOO +1.42% saw within a few days in April “feels like” it may have been trading activity tied to a large institutional investor, Rosenbluth said in a phone interview.
“It would concern me more if we saw a steady stream of outflows throughout the month for each of those products as opposed to a massive trade,” he said. “It doesn’t feel as if this is the masses moving away from equity ETFs.”
According to State Street, April’s equity outflows were heavily influenced by three funds focused on the S&P 500 Index. Without those funds, the report says, equity ETF flows would have been positive, including $7 billion of inflows for U.S. equity exposures.
The SPDR S&P Dividend ETF /zigman2/quotes/206871683/composite SDY +1.78% , Health Care Select Sector SPDR Fund /zigman2/quotes/205918244/composite XLV +1.29% , Vanguard Total Stock Market ETF /zigman2/quotes/202677318/composite VTI +1.60% , JPMorgan Equity Premium Income ETF /zigman2/quotes/218574472/composite JEPI +0.82% and VanEck Semiconductor ETF /zigman2/quotes/200571902/composite SMH +1.52% had some of the largest inflows among equity ETFs in April, excluding leveraged or inverse funds, an email from Elisabeth Kashner, director of global fund analytics at FactSet, shows.
State Street pointed out that investors in April put capital to work in high-quality dividend strategies and defensive sectors, such as health care and consumer staples, in April. See below for sector flows highlighted in the firm’s report.
Fixed-income flows were positive in April, but below their long-term average of $16 billion a month, with the vast majority of fixed-income ETFs trading at a loss this year, according to State Street.
The total $7 billion of inflows into bond ETFs in April were led by “government exposures,” the firm said in the report. Short-term government bond ETFs had the most inflows, followed by intermediate government debt, according to State Street.
Based on FactSet data, the Schwab Intermediate-Term U.S. Treasury ETF /zigman2/quotes/205817506/composite SCHR +0.34% , SPDR Bloomberg 1-3 Month T-Bill ETF /zigman2/quotes/209499658/composite BIL +0.01% and iShares iBoxx $ Investment Grade Corporate Bond ETF /zigman2/quotes/206919681/composite LQD +0.72% had some of the biggest inflows in fixed-income last month, Kashner’s email shows.
But junk bonds funds struggled again last month. High-yield ETFs had almost $4 billion of redemptions in April, suffering a fourth straight month of outflows, according to State Street.
Commodity ETFs attract capital
Investors added capital to commodity ETFs in April, showing interest in precious metals and broad-based strategies, according to State Street. Check out the asset class flows for ETFs in the firm’s report:
The Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF /zigman2/quotes/207481984/composite PDBC +1.77% , iShares Silver Trust /zigman2/quotes/205744453/composite SLV +0.78% , Invesco DB Agriculture Fund /zigman2/quotes/204506753/composite DBA +1.25% , First Trust Global Tactical Commodity Strategy Fund /zigman2/quotes/207775995/composite FTGC +1.11% and SPDR Gold MiniShares Trust /zigman2/quotes/202448130/composite GLDM +0.31% attracted some of the biggest inflows among commodity funds in April, the email from FactSet’s Kashner shows.
On the bright side
Despite tumult for stocks and bonds this year, it’s been a “bull market for inflation-sensitive assets,” said John Davi, founder and chief investment officer of Astoria Portfolio Advisors, by phone. Shares of the actively managed AXS Astoria Inflation Sensitive ETF /zigman2/quotes/232112539/composite PPI +1.06% are up 14.6% this year through Wednesday, FactSet data show.
Another ETF has emerged as a bright spot amid this year’s selloff of stocks and bonds.
Shares of the actively managed Leatherback Long/Short Alternative Yield ETF /zigman2/quotes/222610712/composite LBAY +1.09% have soared 15.2% this year through Wednesday, according to FactSet data. The fund saw a 16.3% total return over that period, compared with a 9.4% loss for the S&P 500 on a total return basis.
It’s “a fully transparent ETF” that was launched in November 2020, said Michael Winter, founder and chief executive officer of Leatherback Asset Management, in a phone interview. “I report holdings nightly.”
Exxon Mobil Corp. /zigman2/quotes/204455864/composite XOM +2.16% and Bunge Ltd. /zigman2/quotes/208554679/composite BG +2.09% and Nutrien Ltd. /zigman2/quotes/207514607/composite NTR +3.92% have been the fund’s biggest winners on the long side this year, with Bunge and Nutrien each being a “food inflation play,” said Winter.