European-listed equity ETFs have seen the highest inflows in 11 months, with US equities benefiting particularly from this trend, as investors seemed to grow more confident following the US Presidential Election.
According to a Monthly European ETF Market Trends update for November from Amundi, equity ETFs domiciled in Europe took in €7.6bn during the month.
US equity ETFs saw inflows of €3.6bn, largely during the days following the victory of Donald Trump in the Presidential Election in the US, which took place on 8 November.
US investors have been displaying renewed confidence in the stock market, as Trump’s victory is expected to signal good news for the financial sector, as well as stronger growth for the US economy on the back of the President-elect’s fiscal spending plans.
During his election campaign, Trump promised to increase spending on infrastructure, which could amount to as much as $1trn over the next decade. This would increase the country’s public debt, but is expected to provide a boost for the economy, as well as domestic-facing stocks.
His victory has also strengthened the US dollar, which is up nearly 5% against the euro since the election to 12 December. This is good news for domestic stocks, though not so beneficial for large-cap multi-nationals which populate plain vanilla ETFs. However, this does not seem to have stopped investors from piling into the market.
Meanwhile, all eyes are now on the interest rate hike by the Federal Reserve, which is widely expected to be announced this Wednesday (14 December).
This would mean further strength for the dollar, and will be bad news for emerging markets. As a result, emerging market equities have seen €1.3bn of outflows in November, according to Lyxor ETF Research, with money mainly leaving Asian and broad EM European-listed ETFs.
The risk-on investor sentiment was also visible within the smart-beta space, where investors continued to put money into value style offerings, while withdrawing from less risky Minimum Volatility ETFs; Value ETFs saw €621m of inflows during the month.
In the same vein, investors took money out of fixed income ETFs, reversing 16 months of inflows. Bond offerings lost €3.3bn during the month, mainly from government bonds in developed and emerging regions alike.
Trump’s victory saw yields on benchmark 10-year treasuries jump from 1.8% prior to the election to 2.4%, as investors exited bond positions.
