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U.S. ETF Inflows Set New Record in First Quarter

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What You Need to Know

  • State Street Global Advisors reports U.S. ETFs attracted $251 billion in the first quarter, led by equity ETFs.
  • If inflows continue at the current rate, 2021 will be a record year for ETF inflows, according to State Street.
  • Investors are favoring equity ETFs over bond ETFs and value holdings over growth.

U.S.-listed ETF inflows are reaching record levels. Nearly $100 billion poured into U.S. ETFs in March, pushing first quarter 2021 flows to a record $251 billion, according to State Street Global Advisors’ ETF Flash Flows report.

If this growth rate continues, ETFs could attract close to $1 trillion by year-end — or about $950 billion — which would be nearly double 2020’s record $505 billion  of inflows, writes Matthew Bartolini, head of SPDR Americas Research at State Street Global Advisors.

“That’s a big-time projection, and unlikely to occur … [but] even if ETFs were able to amass the long-term five-year median monthly flows for the next nine months, the full year 2021 figures could net out around $553 billion …[which] would make 2021 a record flow year, surpassing 2020 by over $40 billion,” explained Bartolini.

First quarter ETF inflows were more than four times the typical quarterly average, he says.

Equity ETFs experienced much of the demand for U.S. ETFs in March and in the first quarter, with inflows of $89 billion and $210 billion, respectively.

Fixed income flows were  $13 billion in March and $44.2 billion in the first quarter, even as close to two-thirds of bond ETFs positive negative returns on the quarter due to rising rates.

Commodity ETFs saw net outflows of  $6.2 billion, with over $4.5 billion withdrawn in March alone, primarily from gold-related ETFs. a

Among equity ETFs, U.S. stock ETFs led with $127.7 billion in first quarter inflows versus about $80 billion for non-U.S. ETFs.

Among fixed income ETFs, aggregate bond ETFs — which include government and corporate bonds and mortgage-backed bonds — led the pack, followed by inflation-protected bonds.

Large-cap and small-cap ETFs were among the most popular U.S. stock ETFs along with value ETFs.

“Investors have definitely embraced the market rally,” Bartolini told ThinkAdvisor, adding that investors are favoring cyclically oriented stocks that will proposer so long as the broad economic recovery continues.

Looking Ahead

The rally began in November and December once concerns about the election and the coronavirus timeline abated, gathering even more momentum during the first quarter, according to Bartolini.

He expects the rally will continue with investors continuing to favor value stocks, which have a stronger 2021 earnings outlook than growth stocks — up about 25% versus 21%, according to Bartolini. Value stocks’ valuations , in other words, provide a “cheaper source of growth over the next 12 months,” said Bartolini.

For investors concerned about how fast the small-cap rally has run, Bartolini recommends mid-caps, which represent more established companies and are historically less volatile than small caps.

(Photo: Shutterstock)

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