Investor optimism was the major piston driving a strong influx of capital into ETFs in July, and that energy has persisted even the aftermath of the recent global market meltdown.
According to the Financial Times, data from BlackRock show record inflows into global ETFs in July, with the $195 billion investors added to the market surpassing the previous monthly high of $169 billion set in December 2023.
The surge in ETF investment reflected a wave of optimism in financial markets, driven by expectations that the Federal Reserve may finally be ready to cut interest rates, the Times reported.
US-listed ETFs accounted for the bulk of the activity with $124 billion in net inflows, the second-highest on record. Fixed income ETFs experienced a particularly strong month, attracting $60.5 billion, while equity funds saw $127 billion in inflows, their best performance since December.
Gold ETFs also performed well, pulling in $3.2 billion, the highest since March 2022. Active ETFs in the US continued to draw substantial interest, setting a new inflow record of $27.9 billion according to Morningstar.
Speaking to the Times, Todd Rosenbluth, head of research at VettaFi, said the record inflows were driven by “strong optimism that the Fed would begin cutting interest rates at a reasonable pace,” which pushed investors to “[embrace] ETFs to get exposure to the broad market.”
Echoing the sentiment, Pat Tschosik, senior portfolio strategist at Ned Davis Research, said the belief in imminent rate cuts had spurred significant interest in fixed income strategies.
“We had a very strong feeling that bonds were going to rally, and all this did was accelerate that bond buying — maybe to the point where we’ve overdone it,” Tschosik said.
In an analysis of Bloomberg data as of July 31, Canada-based National Bank Financial found a total of $36.7 billion went into US-listed fixed income ETFs during the month.
ETF inflows remained robust even amid the recent market volatility that rocked markets worldwide. On the worst day of the global market sell-off in early August, $3.8 billion was added to the SPDR S&P 500 ETF Trust, with significant investments also flowing into the Invesco QQQ Trust and iShares Core S&P 500 ETF, according to VettaFi data.
Based on recent ETF trading activity, Karim Chedid, head of investment strategy for iShares in the Emea region at BlackRock, maintained that July's inflows were supported by strong fundamentals rather than speculative exuberance.
“In the past couple of days we have had orderly trading. We haven’t had panic or a reversal of exuberance,” Chedid told the Times.
He added that equity market valuations were backed by “a solid earnings picture,” reinforcing the sustainability of the flows.
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