U.S. Equity Funds Lead November ETF Asset-Gathering

Global exchange traded products enjoyed another solid month of asset-gathering activity in November, adding $28.2 billion in new assets led by $21.4 billion of inflows into U.S. equity ETFs, said BlackRock Inc. BLK in its monthly “ETF Landscape” note out Thursday. BlackRock is the parent company of iShares, the world's largest ETF issuer.

Predictably, the Federal Reserve loomed large in the ETF decisions made by advisors and investors last month. With many market participants expecting that the U.S. central bank will, later this month, boost borrowing costs for the first time in nine years, U.S. stock ETFs received more cash on expectations the looming rate hike signals Fed confidence in the strength of the world's largest economy.

Conversely, investors yanked $4.5 billion from fixed income funds in November, according to BlackRock data. In November, five of the 10 worst ETFs in terms of lost assets were bond funds while just one fixed income fund ranked among the month's 10 best asset gatherers. No ETF lost more than the $1.36 billion shed by the iShares 1-3 Year Treasury Bond ETF SHY last month.

“U.S. equity funds had their best month this year, collecting $21.4bn, in light of a more positive economic outlook in the most recent Fed minutes. Additionally, third quarter real GDP was revised upward to 2.1%, largely due to higher inventories, and durable goods orders beat expectations. Flows to large cap funds made up roughly half this amount, but small cap products drew in $3.4bn and sector products collected $3.9bn, with investors favoring cyclical sectors. In particular, technology and financials pulled in $2.1bn and $1.4bn, respectively,” said BlackRock in the note.

Investors have been pouring capital into ETFs such as the Financial Select Sector SPDR XLF and the SPDR S&P Regional Banking ETF KRE in anticipation of higher interest rates. Although shares of Apple Inc. AAPL, usually the largest holding in cap-weighted tech ETFs, have tumbled 5.6 percent over the past month, investors have lured to tech ETFs due to the sector's reputation for proving durable in rising rate environments.

For example, the iShares U.S. Technology ETF IYW, which allocates 18 percent of its weight to Apple, added more than $11 million in new assets last month. Technology is a cyclical sector, so its durability against a backdrop of rising rates is not surprising; higher rates should signal the Fed's confidence in the sturdiness of the U.S. economy.

Just six ETFs added more new assets last month than the PowerShares QQQ QQQ. QQQ, the NASDAQ-100 tracking ETF, also features one of the largest weights to Apple among all ETFs.

Investors also embraced developed markets ETFs last month with the iShares Core MSCI EAFE ETF IEFA and the iShares MSCI EAFE ETF EFA adding a combined $2.6 billion in new assets.

“Promises from ECB President Mario Draghi that “we will do what we must to raise inflation as quickly as possible,” had the predictable impact of driving up European stocks while pushing bond yields even deeper into negative territory. Interestingly, broad developed markets equity benefited most, with inflows of $6.4bn, while pan-European equity funds gained only $1.4bn,” said BlackRock.

Five of last month's top 10 asset-gathering ETFs were iShares funds.

Disclosure: The author owns shares of XLF.