#IWD2021: investors getting into swing of rotation says State Street SPDR ETF’s Rebecca Chesworth

Rebecca Chesworth, Senior Equities Strategist at State Street SPDR ETFs analyses the flow of assets into ETFs and considers which sectors are proving particularly popular 

Give or take a spin on Gamestop and related fun in late January, the trends established post the successful vaccine announcements in November 2020 have continued through into March. Markets globally have experienced a significant rotation in equities from those considered defensive and/or growth into value and/or traditionally cyclical stocks.

It is not always the case, but last month flows and performance trends were almost identical in their relative moves. Within ETFs, we have seen heavy flows into equities, primarily funded by cash, targeting exposures which are cheaper, under-owned or more cyclically-sensitive in response to the hopes of reopening of economic activity.

EMEA-Listed ETF Flash Flows

 February ($M)Year to Date ($M)Trailing 3 Months ($M)Trailing 6 Months ($M)
Communication Services14915276114
Health Care-55240-539-81
Consumer Discretionary28089240877
Consumer Staples-31-182-1,096-784
Real Estate99-6-118-72

* Flows include thematic & ESG funds. Source: Bloomberg Finance L.P., State Street Global Advisors, as of 26 February 2021. Figures available in SPDR’s Weekly Flash Flow figures

From a sector perspective, ETFs have received strong net inflows as a means for investors to gain desired exposure to these factors. Financial ETFs (and related industry ETFs) have gathered the most monies as the outlook for bank margins has been improving with the rising US bond yields and the steepening of the curve.  The sector price has gained on hopes of lower bad debts and insurance claims as the economy recovers and business benefits of strong financial markets on investment banks and asset managers. Further attention could come with the resumption of share buybacks with the Federal Reserve’s blessing.

Meanwhile, via insights from State Street’s custody business, we can see that institutional investors have continued to add money to riskier assets. By sector, there have been large relative inflows into the Energy sector globally, partially correcting very underweight positions,  as well as buying of miners and chemical producers in the Materials sector, at the expense of US Technology companies in particular.

The Energy sector in the US (home to large E&P companies) has now returned 61% since the first Pfizer/Biotech announcement, 70% more than the worst performing sector over that period, the ultra-defensive US Utilities sector. This size of difference may close and the leader and laggard may change. However, considering the huge valuation gap and crowded positioning that built up last year, and relative earnings momentum since, between value (Financials as well as Energy) and traditionally cyclical sectors (think Materials) against growth (any FAANG related sector), and this rotation could continue.

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