Historically volatile October could spark more inflows into ETFs
Although September was a rough month for stocks, exchange-traded fund managers weren’t adversely affected.
State Street reports that September saw $46 billion of inflows to U.S.-listed ETFs. This is their 10th consecutive month with over $40 billion. U.S. ETFs are on pace for breaking records in the coming year.
CNBC’s Dave Nadig said that the market’s stagnation may actually have helped accelerate ETFs’ adoption last month. He is chief investment officer and direct of research at ETF Trends. “ETF Edge”On Monday
Nadig explained that historical data suggests that ETFs will be more attractive to investors if they have more volatility. There’s always an opportunity to get rid of an inefficient active manager, such as one that is part of a mutual fund, or to reduce their tax liability.
He said that this often causes investors to review their portfolios.
Nadig explained that many people end up back in ETFs when doing so, and often look at equity exposures of a low cost, plain vanilla type.
According to him, inflation defense and fixed income ETFs like real estate has been reaping the benefits in recent years.
Matthew Bartolini (State Street head for SPDR Americas research), said the sector ETFs went strong in September.
“Sector ETFs had 12 consecutive months of inflows. “This is their longest ever streak,” he stated. Over that span, they have taken in $92 Billion.
They were just one of September’s highlights in the ETF space, Bartolini said: equity ETFs overall took in $18 billion, Treasury inflation-protected securities funds got $3 billion, sector ETFs — particularly energy funds — took in $2 billion and bank loan funds took in almost $1 billion.
The action is in many ways a reflection of a “lackluster leadership in the marketplace,” said he, adding that ETFs are a platform for multiple investor types to express their opinions.
Bartolini stated that, for example, sector-wise, ETF inflows to energy coincided with an increase of call option volumes.
“We are still seeing many investors use the construct sector ETFs for tactical asset allocations. Particularly when the return dispersion so high. I would expect this to continue as we head into the fourth quarter,” which is historically the most volatile quarter.
When you consider what is happening down in Washington, the macro risk calendar can seem pretty full.