By Suzanne McGee
Exchange-traded funds (ETFs) had a bumper month in the United States in November, with assets climbing to a record $7.65 trillion, State Street Global Advisors said on Friday.
ETF investors aggressively bought "risk on" assets in November as "the switch flipped," said Matthew Bartolini, head of SPDR Americas Research at State Street, citing lower interest rates and renewed confidence in the economic outlook.
Signs of cooling inflation have fueled bets that the Federal Reserve will begin unwinding its restrictive monetary policy earlier than expected, driving the S&P 500 to its biggest monthly gain for more than a year in November.
The U.S. benchmark 10-year Treasury yield, which moves inversely to price, registered its steepest decline in more than a decade in November.
Investors' rekindled risk appetite could be seen in the popularity of high-yield bonds, with a record $11 billion in inflows, Bartolini said.
Investors also rediscovered sector funds, directing some $7.5 billion into these ETFs in November. That reversed about half of the outflows in the previous 10 months, Bartolini said.
Treasury bond ETFs were about the only segment with significant outflows in November, according to data in a monthly report published Friday by team of strategists at Citi Research, a division of Citigroup.
The iShares 3-7 Year Treasury Bond ETF had outflows of $920 million, while the iShares 1-3 Year Treasury Bond ETF lost $1.1 billion, the Citi report showed.
Still in terms of price, "everything rallied, including bonds, which had their best returns since 1980, and bond ETFs," Bartolini noted.
By far the lion's share of November's outflows was in the ultra-short end of the fixed income spectrum, analysts and market participants reported. These ETFs, tied to Treasury bills and other fixed income securities expiring in only three to six months, "saw a quick turn in sentiment in November," said Bartolini.
In the first 10 months of 2023, ETFs in this group had attracted $50 billion of assets, only to lose $7.1 billion in outflows in November, he added.
Another 61 ETFs made their debut in November, bringing the year-to-date total to 452 and putting ETF launches firmly on track to setting a new record in 2023, Bartolini and other analysts said. In 2021, the industry rolled out 475 ETFs, the previous record.
"We're likely to see new funds arrive throughout December," said Todd Rosenbush, ETF analyst at VettaFi.
(Reporting by Suzanne McGee; Editing by Ira Iosebashvili and Richard Chang)
