Bear market accelerates ‘great migration from mutual funds to ETFs’ in 2022 | Jobs Vox

Although the volume of income has slowed since 2021, this year’s bear market is not preventing capital flows into currency trading from growing to historic highs.

At the end of November, U.S.-listed ETFs had pulled in $568 billion by 2022 and were on track for annualized inflows of $622 billion based on average December flows over the past decade. This is the second time in the second calendar year that more than $600 billion has flowed, with 2021 being the first instance, the report said.

“The bear market has accelerated a great migration from mutual funds to ETFs,” Matthew Bartolini, head of SPDR Americas research at State Street Global Advisors, said by phone.

For many investors, it’s been a “trigger to act” because they’re “sitting on losses” or getting hit by capital gains taxes when they switch to ETFs and get little return to be “fun.” More tax efficient than mutual funds, Bartolini explained.

At the end of November, the ETF industry had about $6.6 trillion in assets under management, Bartolini said. That’s down from $7.3 trillion last year, but still higher than seen in recent years. For example, U.S.-listed ETF assets grew from $3.4 trillion in 2017 to $5.5 trillion by 2020 this year, according to an emailed data provided by Bartolini.

The pace of monthly ETF earnings has recently increased. State Street reports that the $174 billion in revenues for the month of November was “in the 91st percentile of history” and among the top 20 for the period.

“Bond ETFs are a big driver of this acceleration,” wrote Bartolini Bond of the State Street report. By phone, he said investors had shown interest in high-yield corporate bonds in the past two months as a “return” to wealth after earlier exits.

But he said it’s hard to be too optimistic about 2023 because of fears of a financial meltdown for high-yield debt, or so-called junk bonds. High-yield is more vulnerable to default than investment-grade bonds. Bartolini said he prefers a short-dated, investment-grade corporate bond due 2023, with maturities of one to three years and yields around 5.5%.

Government debt was largely absorbed by fixed income flows in the three months to November, State Street reports. Short-term bonds attracted nearly three-quarters of the capital flows into government debt during that period.

Read: BlackRock sees ‘tremendous’ market opportunities for ETF investors in 2023 after losses in stocks, bonds

Still, equity ETFs dominated inflows this year through November, more than doubling assets going into fixed income on State Street. Meanwhile, year-over-year outflows from commodity ETFs have suffered, the report shows.

In equities, “the bias is toward defensiveness,” Bartolini wrote, noting that defensive sectors posted the 13th straight month of earnings inflows in November.

State Street confirmed last month that healthcare and consumer staples were “the main areas of interest” in defense sectors. The report shows that ETFs focused on the two areas that saw the biggest sector inflows in November.

Meanwhile, dividend funds continued to attract investors last month, with ETFs focused on dividend-paying stocks seeing their 27th straight month of gains, according to the report.

“DVD strategies have this unique combination of value and quality,” Bartolini said by phone.

But split shares are “not 100% immune,” he said. He added that “there is a fair amount of cyclical exposure” and that the strategy could benefit from “an upside cyclical surprise.”

Shares of the iShares Select Dividend ETF DVY;
+0.30%
They were down just 0.5% this year through Wednesday and returned 2.1% overall, FactSet data showed. In contrast, the SPDR S&P 500 ETF SPY;
+ 0.76%
Trust lost 16.3% on a total return basis.

In equities, ETFs focused on U.S. stocks have seen strong interest from investors this year, but State Street has seen recent interest from other regions, Bartolini said.

In November, “investors are starting to look overseas,” perhaps because the U.S. market appears to be “absolutely undervalued” in terms of valuations, he said by phone.

The Xtrackers Harvest CSI 300 China A-Shares ETF ASHR;
+ 0.14%
It is down 26% this year through Wednesday, the iShares MSCI Emerging Markets ETF EEM;
+ 0.72%
According to FactSet data, it has dropped to 21%. The iShares MSCI EAFE ETF EFA;
+ 1.42%,
The index, which tracks developed market shares in Europe, Australia and the Far East, fell 15 percent over the same period.

Next year, Bartolini said he expects U.S.-listed ETFs to see $500 billion to $600 billion in revenue, despite the recession.

Here’s the usual look at the top and bottom performing ETFs from last week through Wednesday, according to FactSet data.

The best…

Top performers	% performance
PIMCO 25+ Year Zero Coupon US Treasury Index ETF ZROZ; + 0.72%	6.0
KraneShares CSI China Internet ETF KWEB, +2.36%	5.6
Vanguard Extended Duration Treasury ETF EDV; + 1.16%	5.3
Invesco China Technology ETF CQQQ + 2.01%	3.8
iShares 20+ Year Treasury Bond ETF TLT; + 0.97%	3.5
Source: FactSet data as of Wednesday, December 7, excluding ETNs and leveraged products. The NYSE, Nasdaq and Cboe include ETFs that trade $500 million or more

… and the worst

Bottom performers	% performance
iShares Currency Hedged MSCI EAFE ETF HEFA; + 0.43%	-18.4
Xtrackers MSCI EAFE Hedged Equity ETF DBEF, + 0.54%	-13.2
AdvisorShares Pure Cannabis ETF MSOS, -5.36%	-12.3
United States Oil Fund LP USO; + 2.25%	-9.7
ARK Next Generation Internet ETF ARKW, + 0.83%	-9.7
Source: FactSet

New ETFs

• Tidal Financial Group Senior Secured Credit Opportunities ETF announced its SECD launch on December 6.
  +0.10%,
  An actively managed fund that invests in highly rated loans and bonds. Tidal EFF Investments and Technology Business said the new fund will be managed by Gateway Credit Partners.

• Dimensional Fund Advisors announced the listing of the Dimensional US Large Cap Value ETF DFLV on December 7.
  + 0.67%
  and Dimensional Global Real Estate ETF DFGR,
  + 1.96%
  on NYSE Arca.

Weekly ETF is read