Investors went defensive during the week, investing in gold and fixed-income funds as U.S. equity ETFs experienced a rare episode of outflows. For the week ended Oct 17, U.S.-listed ETFs recorded a net inflow of $1.1 billion, according to FactSet data, although the mix of flows painted a risk-off picture.
• GLD shares are sliding. See the full story here.
Gold captured the headlines. The SPDR Gold Trust (NYSE:GLD) brought in a whopping $1.7 billion, almost equaling the $1.8 billion reeled in by the SPDR S&P 500 ETF Trust (NYSE:SPY). The buying was sparked as gold prices climbed above $4,300 per ounce, sending year-to-date returns above 60%. That represented one of the metal’s strongest weekly bursts in years, fueled by ongoing inflation, geopolitical tensions and hopes the Federal Reserve will reduce rates sooner instead of later.
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In contrast, U.S. equity ETFs lost $2.5 billion as confidence in growth stocks waned following a volatile earnings season. Tech-focused Invesco QQQ Trust (NASDAQ:QQQ), regional bank ETF SPDR S&P Regional Banking ETF (NYSE:KRE), and some leveraged funds were the most popular for redemptions, with investors rolling off riskier positions. Leveraged funds alone lost $631 million, indicating a widespread flight from speculative wagers.
The gold move wasn’t solo. $1.6 billion went into U.S. fixed income ETFs, led by iShares U.S. Treasury Bond ETF (BATS:GOVT) and iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE:LQD). Combined with gold flows, the pattern is obvious: investors are depositing money in safe havens they perceive as such as uncertainty hangs over the market environment.
Flows evidence a definitive turn to defensiveness. When gold rallies this strongly and equity ETFs bleed in the same week, it’s a signal that investors are hedging against something more than volatility, possibly gearing up for regime change.
As the S&P 500 trembles at record highs and rate expectations are unsettled, gold ETFs could stay in play — at least until risk appetite returns to the broader market.
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