- With equities posting their best returns since November 2020, equity ETFs took in $60 billion and outpaced bond ETFs by $43 billion last month — raising the three-month difference figure to almost $100 billion.
- With another $6 billion, and led by cyclicals, sector ETFs cemented a new record of 13 months in a row with inflows.
- Bond ETFs took in a respectable $17 billion, but were driven by a record-setting $6 billion of inflows into TIPS and almost $3 billion of flows into below-investment-grade credit.
Led by US equities, global stocks posted their best return (+5.0%) since November 2020. The S&P 500 rebounded out of the gate, registering multiple new all-time highs during the month to send the full-year figure to 59 new highs — the third-highest amount in any calendar year in the past 20 years (behind 2017 and 1995).1
These gains have come at the expense of sagging bond returns. Global core bonds are poised to register one of their worst returns (-4.3%) in nearly 20 years — diversification on display, perhaps. Yet, given the strength in stocks, the 60/40 portfolio has still returned 8%, a level that is more than the prior 30-year historical average (+6.7%)2 — not bad for a strategy that is supposed to be dead.
But the year is not over yet. With two months left, we are in the final countdown to how this period could/will be remembered. Right now, investors continue to remain optimistic, evidenced by significant allocations to risk assets for the first 10 months of the year.
Stocks for the Long Run
ETFs continue to break records, taking in $82 billion in October. This is their 12th month in a row with more than $40 billion of inflows — a streak that began in November of 2020 when clarity on the vaccine timeline kickstarted this current phase of the rally and risk-on buying behavior.
These strong flows were once again led by equities. Equity ETFs took in $60 billion last month, their fifth-most ever, propelling full-year totals to a record $539 billion — a figure where, if no other asset class had inflows on the year, would be a record for ETFs in and of itself.
Not only does the absolute size of the flows into equity ETFs paint a bullish risk-on positioning picture, but the relative flows do as well. In October, equity funds took in $40 billion more than fixed income ETFs — their 12th month in a row of doing so. These flows have now pushed the trailing three-month stock-to-bond flow difference figure to nearly $100 billion and above the 80th percentile, as shown below.
Percent of Funds with Inflows Per Month
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Footnotes
1FactSet, as of October 31, 2021.
2Bloomberg Finance L.P., as of October 31, 2021, based on annually rebalanced exposure of 60% MSCI ACWI Index and 40% Bloomberg Global Aggregate Index.
Glossary
Bloomberg Global Aggregate Bond Index
A broad-based flagship benchmark that measures the investment grade, global fixed-rate taxable bond market.
MSCI ACWI Index
A market-capitalization-weighted stock market index that measures the stock performance of the companies in developed and emerging markets.
S&P 500® Index
A market-capitalization-weighted stock market index that measures the stock performance of the 500 largest publicly traded companies in the United States.
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Originally Posted on November 3, 2021 – October Flash Flows: Risk-on Into the Final Countdown
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