This past year was unlike any other in so many ways, it's hard to keep track to all the adjustments we've all had to make. The world of investments was no different. The markets plunged in March and made steady strides despite a virus 2nd wave, racial protests, and an insane election season. And even with a President acting like a 3 year-old with matches and a gas can, the markets still hit high all time highs in December. ETF flows through it all had one of their best years ever. Flows into ETFs hit almost $500 billion on the year, with equities gaining over $239 billion of those flows. More amazingly, over half of those equity flows happened the last 2 months of the year.
The year end numbers really don't do justice to the amount of flow movements there were from day to day, week to week, month to month. Overall the flows into safety that held for the year, make complete sense based on the pandemic crash. The broad-based approach really took off in the last quarter of the year. About the same time the flows started leaving gold. Whereas the flows into fixed income was spread pretty equally amongst quality and duration.
Even with the broad-based approach taking in the flows overall, that did not hold in the emerging markets space. The outflows were primarily led with growth factor ETFs. Another rotation type trade that seemed to take hold around the late 3rd quarter and through the end of the year.
Within the US sector, the flows were again buoyed by a end of year surge towards equities. But the search for yield led many investors to the more standard value plays. Somewhat surprising is that energy sector led flows over the last year
Unsurprisingly, real estate sector was the leader in outflows. Real Estate was hit hard by the pandemic, especially any funds that had major exposures to hospitality or retail.
The pandemic was global and we've had the worst results in terms of deaths in the world. But that didn't keep investors away. As with most global crisis, many still flock to safety in US assets. That certainly helped flows in the early part of the year.
ESG funds just dominated inflows by theme on the year. At every time interval on the year ESG was the leader, always by a factor of almost ten. With ESG funds becoming more and more popular, it will be important to really start analyzing what constitutes the ESG label. How those funds actually score against the ESG filter is completely up to the fund's manager at this point.
2020 is in the books and like I said, it really was unlike any other in my career. From a markets perspective, 2021 could be another good year in returns and flows into ETFs. Three different vaccines are now being injected into willing folks and hopefully by the third quarter more people will be willing to get out and do stuff. Travel bookings for late 2021 and 2022 are booming right now. If those types of indicators continue, the markets will look through any setbacks with Covid deaths and testing numbers. The markets will also look even more disconnected from the real world, but hopefully those on the bottom of the K recovery will start to see of those jobs actually come back around that time.
I hope you have a great 2021 and take care!
If you have questions on how your portfolio is positioned, let us know!
The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.