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Cyclicals outpaced defensives by $15B in Feb.: State Street

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Yahoo Finance’s Alexis Christoforous and Matthew Bartolini, Head of SPDR Americas Research at State Street Global Advisors, discuss ETF inflows.

Video Transcript

ALEXIS CHRISTOFOROUS: All right, time now for our ETF report brought to you by Invesco QQQ. Joining us is Matthew Bertolini, head of SPDR America's research State Street Global Advisors. Matthew, good to see you. So ETFs, I mean, it's really just been off to the races. I think they've had one of their best years ever. Where are investors pouring their money right now?

MATTHEW BARTOLINI: So I mean, investors have been diving in to all different parts of the ETF marketplace. I mean, the past four months, ETFs have taken over $300 billion. If that was a calendar year, it would be the fifth most on record enrolling that's for a month. ETFs had the best start to a year ever as well, taking over $156 billion.

And if we look beneath the headline numbers, it's actually to a lot of cyclically oriented exposures, areas like value, small cap. And when we look at a sector perspective, cyclical sectors, like financials and energy, have outpaced more defensive sectors basically by $15 billion in February and by about $40 billion over the past three months, which is about 14 times more the historical average. So investors are positioning more cyclically as the economy attempts to reopen with this more reflationary type of theme playing out in the marketplace.

ALEXIS CHRISTOFOROUS: All right, so sort of some rate sensitive picks are for investors. A moment ago, leading into you, I talked about those small cap stocks doing pretty well so far this year and up about 2% today, the Russell 2000 index is. What are you seeing in terms of appetite for small cap ETFs?

MATTHEW BARTOLINI: I mean, the appetite is big. Investors plowed about $7 billion in small cap ETFs in the month of February, continuing to pour money in them in the month of March. And that sort of goes along the lines of sort of reflationary playbook, where you want to focus on more rate sensitive, cyclically oriented areas of the marketplace that would benefit from a higher growth expectation.

But also, small caps had constructive valuations on a relative basis to broad-based large caps, because small caps haven't really performed quite strongly leading up to 2020. And then, outside of the recovery, they really started to rally because there's an expectation of higher growth and inflation. And that would work well for, again, more cyclically oriented-- I mean, it's sort of like a wash, rinse, repeat. Investors continue to go into value as well. Value used to taking in about $6 billion in March, while growth ETFs, because of the volatility we've seen, have actually lost about $4 billion. So that rotation keeps happening as we go deeper into the spring.

ALEXIS CHRISTOFOROUS: What about those ETFs that were sort of trading up on the belief at the Biden administration would come in and, you know, be good for the environment trade and those solar energy type trades, EV? What are you seeing in that space right now? Because I believe those have pulled back, as well as have the growth stocks.

MATTHEW BARTOLINI: Well, coming out of November, as a result of the election, we saw, you know, clean energy type just really taking a significant amount of flows, well more than they had on an acid base perspective just in the terms of billions. We're going to slow a bit. Inflows are still there, because I think investors still appreciate some of the long-term secular trends that we're having from a renewable capacity. I mean, I think by 2025, renewable electric generation will outpace coal for the first time from a global perspective ever.

So, there's still a secular trade going on. They've pared back that sort of torrid pace coming right out of the election, just because those stocks have rallied so much. And we have sort of seen sort of a transition away from high growth into, again, more value play. But again, we still see investors going into it, so there's still a sort of buy the dip mentality in areas that have a sort of transformation or a transcendent type of trend to them that could play out over many years.

ALEXIS CHRISTOFOROUS: All right, we're going to leave it there. Matthew Bartolini of State Street Global Advisors, good to see you today.