ETFs Are Breaking Inflow Records. Not So Much Overseas
US equity ETFS saw nearly $150 billion in inflows last month. Those tied to Europe, Japan, and emerging markets weren’t so lucky.
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It feels like you can’t spell ETF these days without good ol’ USA.
ETFs hit a record $205 billion in inflows in November, and nearly three-quarters of it was invested in US equity ETFs, according to BlackRock data. The funds were boosted by a two-year bull market and an incoming Donald Trump administration that has Wall Street’s mouth watering. But for all the exuberance, foreign ETFs weren’t so lucky. About $12 billion was withdrawn from European, Japanese, and emerging market equity funds last month, marking the first time all three regions saw outflows since May 2019.
With the US president-elect suggesting tariffs of 10% to 20%, enthusiasm for foreign market equity ETFs has quickly soured. “‘American exceptionalism’ has become a justification for shifting investments into US ETFs,” said Stephen Cucchiaro, CEO of 3EDGE Asset Management. While outflows are seldom good, the trend could be a boon for financial advisors.
Just a Hiccup
Despite America accounting for 70% of global ETF assets under management, the rest of the world’s ETF market remains surprisingly active. More than 550 ETFs launched in the Asia Pacific (excluding Japan) in the first 11 months of the year, according to the consultancy ETFGI. Close to 300 ETFs launched in Europe over the same period.
“You’re going to see a lot more international equity active ETFs,” said Mo Sparks, Raymond James Head of ETFs. “That’s part of the market where, as an active manager, you can more consistently deliver alpha.”
Noise Cancelling. For financial advisors, a few billion dollars in outflows shouldn’t keep clients from staying diversified. Outflows can actually serve as motivation for advisors and their clients to seek out opportunities, said Chris Murphy, T. Rowe Price Head of ETF Specialists. Short-term trends can sometimes end up being a whole lot of noise, meaning advisors shouldn’t get distracted from their long-term goals, he said.
“Anytime you see these types of flow disparities, it is an opportunity to look at those categories and find ways to add exposure,” he told The Daily Upside.
