US-listed ETFs have gathered more than $28 billion in September – a new annual high – despite the Federal Reserve hinting at interest rate hikes – a move intended to return to normal monetary policy and ward off another Great Depression.
ETFs gained $28.2 billion last month, following inflows of $29.9 billion in August, according to FactSet data. Since 1 January, investors have ploughed $332.1 billion into ETFs, a new annual high.
US fixed income ETFs gained $11.2 billion last month. One particularly popular ETF was the iShares 20+ Year Treasury Bond ETF (TLT), which attracted $2.5 billion, pushing its total assets up by 26% to $9.5 billion.
The growth of TLT and the increase of general US fixed income ETF assets to more than $507 billion comes despite renewed expectations of further rate hikes this year and in 2018.
Federal Reserve Chair Janet Yellen gave a hawkish speech at the end of the month, warning that “we should also be wary of moving [rates] too gradually”. Industry analysts say there is a 70% chance the Fed will raise rates again at the next central bank meeting in December. Three hikes are expected in 2018, from current levels at 1.25% and 1.5%.
After Yellen’s latest remarks, fixed income markets have repriced, with yields on 2-year US Treasury securities rising to their highest level in 10 years.
US equity ETFs remain at record highs
As sovereign bond prices fell, US stock markets remained at record levels and with low volatility.
President Donald Trump has helped to keep markets high by announcing a cut to corporation tax from 35% to 20% as well as mostly ending the taxation of non-US earnings.
“Our country and our economy can’t take off as they should unless we dramatically reform America’s outdated, complex and burdensome tax code,” Trump said. “It’s a relic. We’ve got to change it. Have to compete, compete with other countries.”
Equity ETFs gained $5.6 billion in September, pushing total assets to $1.7 trillion. Globally, US equity ETFs gained double that figure, as shown by TrackInsight data.
In a risk-on market, the price of gold has fallen about $70 per ounce from its September highs to current levels of around $1,272. Investors still added around $2.4 billion to the SPDR Gold Trust (GLD) in that period despite rising rates and a climbing dollar. Commodity ETFs in the US overall gained $2.2 billion in September.
Currency and short/inverse ETFs lose cash
Asset classes that suffered outflows last month include currency ETFs at minus $115 million, as well as leveraged and inverse funds by a combined $1.2 billion.
Mohamed El-Erian, chief economic adviser to Allianz, wrote in the Financial Times that the FX market is suffering from the “hot potato syndrome” whereby no country wants to absorb long term currency appreciation.