Investors have poured $28 billion into U.S.-listed ETFs in just the first half of July alone, a dramatic reversal following record-breaking redemptions in June that stemmed from concerns about what tighter monetary policy might do to what many see as a fragile economic recovery.
Indeed, after investors yanked assets from just about every asset class in June—a record monthly outflow of $12 billion—they appear to be returning to the ETF market with a vengeance now that the Federal Reserve has softened its words about the prospect of beginning to bring to a close nearly five years of quantitative easing.
The $28 billion in month-to-date inflows already put July’s ETF asset growth among some of the industry’s best asset-gathering months in recent years, according to data compiled by IndexUniverse. And the inflows could put the ETF market back on track to beating last year’s record inflows of $188 billion. After June’s outflows, year-to-date asset gathering fell off a record-setting pace .
In the past three years or so, monthly asset inflows exceeded $25 billion in only five months, most recently in January 2013, when U.S.-listed ETFs attracted a net of $30.77 billion in new assets. The record monthly asset gain in that period was September 2010’s $37.59 billion, IndexUniverse data show.
It’s no surprise that U.S. equities ETFs are at the center of the action. After leading outflows in June with redemptions of some $8 billion, the segment is now leading with net inflows of more than $24 billion so far in July. The SPDR S'P 500 (SPY) has gathered $9 billion so far this month, after net redemptions of $2.48 billion in June.
The massive demand for U.S. stock exposure comes as the U.S. stock market continues to rally to record high territory thanks to the Federal Reserve’s latest comments about the interest-rate outlook, which suggest accommodative monetary policy will remain in place for as long as necessary.
Fed Chairman Ben Bernanke most recently spoke to Congress this week, saying the U.S. economy remains vulnerable, and that the Fed’s policies would remain in place if the jobs market numbers fail to reflect true growth in the labor force, and if inflation stays below the Fed’s 2 percent objective, according to the Wall Street Journal.
The Congressional testimony’s noticeable focus on the risks facing the U.S. economy contributed to market sentiment that the Fed will remain accommodative, and that interest rates will stay low for a long time.
The S'P 500 was extending gains again Wednesday, breaking above 1,682.50 in early trade—its recent record-high closing. The broad benchmark of U.S. equities is now up 14.6 percent year-to-date.
It’s worth pointing out that gold, meanwhile, continues to struggle in an environment where risk-on sentiment is so prevalent. In the past five days, the yellow metal has retreated another 0.1 percent, and is now trading at around $1,282 an ounce.
The SPDR Gold Shares (GLD), the largest physical gold fund in the world, continue to slide, having now shed 6.6 percent of its value in the past one month. The fund has also seen its assets under management plummet:Since July 1, GLD has seen net redemptions of roughly $2 billion, putting total year-to-date net asset outflows at $19.43 billion.
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