Defensive ETF flows hint at “bullish but worried” sentiment on Wall Street


Exchange Traded Fund Update

In recent weeks, billions of dollars have flowed into “defensive” exchange-traded funds, highlighting the unease in some corners of Wall Street after the U.S. stock market hit a series of record highs.

The resurgence of coronavirus infections in some US states, evidence of rising inflationary pressures, and concerns that the Fed will soon begin to scale back its massive asset purchase program have prompted some investors to take a more cautious stance.

The US stock market faced selling pressure on Tuesday, and the Standard & Poor’s 500 index fell by about 1% in afternoon trading.The decline comes after a round of disappointing data U.S. retail sales July. Investors have been weighing whether the rapid spread of the coronavirus and the reduction in government stimulus payments will begin to affect consumption, which accounts for about 70% of the US economic output.

The S&P 500 index is still up about one-fifth so far this year, doubling from the lows it hit during the market turmoil. March 2020At the same time, according to Bank of America data, the index has not experienced a 5% correction in the past nearly 200 trading days. This is one of the longest consecutive rises in the past half a century-a calm rise has added impetus to the change. Under the surface of the market.

According to State Street Bank data, ETFs related to U.S. defensive industries tend to perform well in a more severe environment—healthcare, consumer staples, and utilities—after recording a total outflow of US$3.6 billion in the first half of 2021 , Which attracted a total of nearly US$5 billion in net inflows to global advisors in July.

“The capital inflows in July mainly went to the defensive sector. This situation continued until August. So far this month, ETFs in the health care and utilities sectors have inflows of $1 billion,” State Street SPDR Americas research director Matthew · Matthew Bartolini (Matthew Bartolini) said.

In contrast, ETFs related to the more economically sensitive US industries (finance, materials, industry, consumer discretionary, energy, and real estate) all outflowed in July, totaling US$7.2 billion. In the first half of this year, these six cyclical industries gathered a total of 57 billion U.S. dollars.

Bartolini said that evidence of investor “bullish but worried” sentiment is also reflected in the capital flow of the Smart Beta ETF, which is designed to take advantage of long-term mispricing. ETFs that focus on so-called high-quality stocks with reliable earnings after outflows of US$3.8 billion in the first half of 2021, inflows of US$21 billion in July.

Momentum ETF purchases stocks with positive recent price trends, and outflows of US$856 million in July almost erased the US$1.1 billion inflows in the first six months of this year. Value ETFs buy low-priced stocks that tend to perform well during periods of strong economic growth. After an inflow of US$12.8 billion in the first half of the year, an outflow of US$1.4 billion last month.

New York Citigroup analyst Scott Chronert (Scott Chronert) said that the economic recovery transactions favored by ETF investors in the first half of this year “seem to have lost its luster”, and the “risk-off tendency” in ETF flows in July was obvious.

So far this year, the inflow of U.S. stock ETFs is approximately $250 billion, which has provided impetus for the S&P 500 Index to hit a record high. As major US stock benchmarks hit a record high this month, more and more investors question how far the rebound can go.

“Customers feel that there is no other place but to invest in stocks because bond yields are so low. But we recommend that customers move to more defensive positions because stock market returns may be lower and more volatile in the second half of the year,” Bank of America in New York Strategist David Jones said.

The S&P 500 index line chart shows that Wall Street stocks are higher this year, but fears intensify

A survey conducted by the Bank of America of investors with US$702 billion in assets under management highlighted these concerns: expectations of continued improvement in the world economy fell in August to the lowest level since April 2020.

According to data from Citigroup, as of August 11, 391 constituent stocks of the Standard & Poor’s 500 Index announced their second-quarter earnings, which exceeded analysts’ expectations. So far, only 55 S&P 500 companies have reported disappointing earnings in the second quarter.

Tobias Levkovich, chief U.S. equity strategist at Citigroup, said the performance of U.S. companies was “shocking”. However, investors are increasingly worried about whether American groups can meet the high standards set in the second quarter. A survey of fund managers by Bank of America shows that optimism about corporate earnings has waned, and investors now expect profit margins to fall-something they have never predicted since last summer.

“rare [investors] At this moment, besides stocks, there are other places where new funds can be used. [But] We suspect that higher taxes in the United States, possibly longer-lasting inflation, the Fed’s talk of downsizing, and possible profit margin compression all support the possibility of the correction,” Levkovich said.


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