Record ETF activity spurred by global change

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January 2017 was the second-largest month for ETFs on record, with some A$80 billion flowing into various products as markets shift, an ETF manager has revealed.

SPDR head of ETF strategy and research Matt Arnold says the huge movement in ETFs was reflective of a changing investment environment, especially in the US.

“ETFs are a great way to measure sentiment and particularly since Donald Trump’s election, we’ve had some pretty dramatic moves in and out of ETFs,” Mr Arnold said.

“All of the talk has been about interest rate rises in the US and with Trump’s election, the perception has been that the rate rises would be even faster than they had been predicted.”

Mr Arnold said rather than causing a mass exodus from fixed income, investors were re-evaluating duration.

“January saw a rotation back into fixed income but it was on the short duration side which essentially indicates investors are preparing themselves for higher interest rates,” he explained.

The major drivers of flows were all global, as domestic markets remained quiet in comparison.

“If we look at what was popular [globally], Japanese equities recovered from a flow perspective attracting $10 billion, and we also saw money move back into US investment grade bonds,” Mr Arnold said.

“It was actually a pretty lacklustre month for ETF flows in January in Australia, [and where] we saw most of the action was money coming out of Australian equity ETFs, almost $200 million, and going into global equity ETFs and money market and fixed income ETFs.”

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