Outflows in European-listed US equity ETFs
European-listed US equity ETFs saw nearly €1bn of outflows in October, as investors worried about the outcome of the Presidential Election, which took place on 8 November and saw Republican candidate Donald Trump emerge victorious.
Investors withdrew some €972m from Developed Markets North America Large Cap equity ETFs, TrackInsight‘s latest monthly flows data shows. The outflows can be attributed to market uncertainty over the outcome of the tightly-fought Presidential Election and the impact this would have on markets.
Now that the Election is over, we can say the reaction of the stock market has been far more subdued than some expected, with many investors predicting heightened volatility in the event of a Trump win, similar to that seen after the Brexit vote.
However, markets rebounded quickly after initial falls. Asian markets were hit the hardest on the day of the result (9 November), with the Japanese Nikkei 225 dropping more than 5%, but also recovered losses the following day.
Some areas of market received strong boost after US election outcome
In fact, some areas of the market received a strong boost from Trump’s victory, with biotech being one of the key beneficiaries. For example, Source said its Nasdaq Biotech UCITS ETF nearly doubled in size following the Election outcome, taking in $170m on the day of the vote to reach $370m in size.
The biotech sector was underperforming in the run-up to the Election on fears of a Hillary Clinton win, whose policies were expected to hit drug pricing – something that Trump does not seem to be focused on.
Trump’s win is also good news for energy stocks and financials, due to expected lighter regulation in both areas of the market, but clean energy companies are likely to suffer as the President-Elect intends to scale down support for this sector.
All in all, the outflows from US equity products in October reflect investors’ worries about global uncertainty, but many are now eyeing investment opportunities in the US as they digest the news of Trump’s win and its potential impact on the market.
Inflows into all other equity categories apart from Europe
Meanwhile, October saw positive flows into all other equity categories apart from Europe, which continued to suffer outflows.
European-listed Emerging Markets equity ETFs were the bestseller during the month, attracting €959m of investors’ money. This takes total inflows into this geography for the three months to €2.2bn.
Both outflows and inflows in the bond space
In the bond space, outflows continued from Developed Markets Corporate Investment Grade bond ETFs, which shed €833m in October, while Developed Markets Government bonds continued to see inflows (of €822m).
However, bonds were hit hard by Trump’s victory in November, with expectations of increased fiscal stimulus from the US government and the expectations of the rate hike by the Federal Reserve in December putting pressure on the asset class.
Bank of America Merrill Lynch reports that following the Election, bonds across the globe saw their largest weekly fall since June 2013, when a bond sell-off known as the ‘Taper Tantrum’ followed the Fed threatening to slow down its rate of bond purchases. Benchmark 10-year treasury yields rose to 2.2% the week after Trump’s victory, from lows of 1.8% on 4 November.
How global markets will be impacted in the longer term from the outcome of the Election?
It remains to be seen how the outcome of the Election will impact global markets in the longer term, given Trump does not take up his new role until January, but markets are likely to remain volatile as investors await more clarity.