ETFs are tracking for a record year.
So far in 2020, roughly $252 billion has flown into exchange-traded funds, according to ETF.com. That’s up from the $153 billion ETFs had accrued year to date by this time in 2019 and puts the industry on track to beat its annual record of $452 billion set in 2017.
Some of the funds with the largest inflows this year include the Vanguard S&P 500 ETF (VOO), the SPDR Gold Trust (GLD), the iShares Investment Grade Corporate Bond ETF (LQD), the Invesco QQQ Trust (QQQ) and the iShares High Yield Corporate Bond ETF (HYG).
If there’s one message this trading activity is sending, it’s “don’t fight the Fed,” Jan van Eck, CEO of Van Eck Associates, told CNBC’s “ETF Edge” last week.
“You’d probably be shocked to see that our biggest inflow ETF year to date is our high-yield corporate ETF, the Fallen Angel ETF, with [$]1.2 billion in inflows,” van Eck said.
The VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL) is up just more than 1% year to date. The fund invests in companies whose investment-grade bonds are downgraded — “fallen angels,” by some Wall Street aficionados’ counts. ANGL’s top holdings as of the end of July were Carnival, Kraft Heinz, Vodafone and Occidental Petroleum.
“Although the Fed literally has been buying that ETF, they only own 2% of the inflows, so, can’t thank the Fed for all those inflows,” van Eck said. “But it makes sense. We’re going to have lower [interest rates] for longer and longer and I think investors have realized that and they’re just chasing that money.”
“That strategy is beating high-yield benchmarks by 5% year to date,” the CEO added. “It is a little surprising given the hiccup and the large discounts we had in ETFs in the March-April time frame, so, it’s great to see that investors, I think, understand what might happen in different fixed income markets and still have embraced fixed income ETFs.”
Ben Carlson, director of institutional asset management at Ritholtz Wealth Management and the author of “A Wealth of Common Sense,” credited the Federal Reserve for the way it supported the fixed income market.
“The fact that they could snap their fingers and make people feel more confident in this stuff and … just plow in [is] pretty amazing when you think about the fact that this stuff used to be so illiquid and hard to trade for individuals,” he said in the same “ETF Edge” interview.
With much of the market now stabilizing, the Fed’s actions could become a historic milestone, Carlson said.
“I think it really may, going forward, change the way people think about risk and how these things will work,” he said. “The Fed has pushed people out on the risk curve, too, because Treasury rates are so low and just finding yield anywhere is really tough for people. So, I think the way that people look at risk during a crisis could change from all of this.”
