Category: market volatility

U.S. Equity Funds Post Slower Inflows


This post is by Dorothy Neufeld from Visual Capitalist


bar chart showing the decline in inflows to US equity funds

The Briefing

  • U.S. equity fund flows sank to $48 billion in February, a 70% decline from March 2021
  • Large growth funds continue to see outflows as Russia’s invasion of Ukraine escalates

U.S. Equity Funds Post Slower Inflows

Investors are bracing for several interest rate hikes amid a Russia-Ukraine war.

In February, U.S. equity fund flows hit $48 billion, a 70% decline from the year before. In the previous month, U.S. equity fund flows hit their lowest level since the pandemic began.

With data from Morningstar, we show how the invasion of Ukraine and a rising rate environment has affected U.S. equity fund flows.

Risk-Off Environment

In January, investors shed a record $23 billion from large growth funds, the highest level since 2017. This trend continued in February as investors sought out lower-risk investments.

Growth stocks historically tend to outperform when interest rates are declining. When the price of capital is low, companies borrow and expand operations at a lower cost.

The reverse is true when rates rise, putting pressure on corporate earnings and equity valuations. In March 2022, the Fed raised interest rates for the first time since 2018.

Growth funds also tend to be more volatile during market selloffs. So far in 2022, the Cboe Volatility Index (VIX) is up more than 40%.

Fund CategoryJanuary 2022 Estimated Net FlowFebruary Estimated Net Flow
Large Growth

-$23.2B-$6.0B
Mid-Cap Growth-$3.5B-$1.2B
Small Growth-$2.7B-$1.1B
Large Blend-$3.5B$38.5B
Mid-Cap Blend$0.7B$2.1B
Small Blend (Read more...)

Fixed Income ETFs: Investors’ Ticket to Flexibility



The ETF snapshot
ETFs during volatility Part 1 of 5
Fixed income ETFs Part 2 of 5
ETF use cases Part 3 of 5
Evolution of ETFs Part 4 of 5
Choosing an ETF Part 5 of 5

The following content is sponsored by iShares

Download the ETF Snapshot for free.

Fixed Income ETFs: Investors’ Ticket to Flexibility

When market volatility surges, fixed income investors encounter multiple pressure points. For example, they may face difficulties with liquidity, price discovery, and transaction costs.

In this infographic from iShares, we show how fixed income ETFs help address these challenges. It’s the second in a five-part series covering key insights from the ETF Snapshot, a comprehensive report on how institutional investors manage volatility.

The Methodology

To assess the role that ETFs play, Institutional Investor published a report in 2021 based on a survey of 766 decision makers. Respondents were from various types of organizations, firm sizes, and regions.

For instance, here is how responses broke down by location:

  • 21% Asia Pacific
  • 36% North America
  • 29% Europe, Middle East and Africa
  • 14% Latin America

Here’s what the survey found.

Encountering Roadblocks

During 2020 market volatility, the vast majority of institutional investors said they had difficulty sourcing (95%) and/or transacting (92%) in individual bonds.

Smaller firms faced these roadblock more often than larger institutions.

Assets Under Management% Who Faced Great Difficulty Sourcing Bonds
$5B or less61%
$5B-$50B46%
$50B+42%

How did institutional investors overcome these liquidity challenges?

Turning to Fixed income ETFs

More than half of institutions increased their use of ETFs as they looked to source, price, and transact bonds. In fact, in the first three months of 2020, fixed income ETF trading volume reached $1.3 trillion—half of 2019’s total.

ETFs also became more popular relative to their underlying basket of securities. During extreme volatility in April 2020, ETF trading volume relative to the underlying securities was three times higher than the 2019-2020 average.

With their higher liquidity, ETFs also helped institutional investors with price discovery.

“When there was no trading activity in certain corporate bonds, you can use the ETFs as a pretty good proxy for what people are willing to pay and what the appetite is.”
—Senior Analyst, Asset Management firm

However, the usefulness of fixed income ETFs goes far beyond liquidity.

Want more institutional insights into ETFs?

ETF Snapshot

Download The ETF Snapshot for free.

A Versatile Tool

Institutional investors said fixed income ETFs were a good replacement for individual bonds for a number of reasons.

Reason % of Respondents
Liquidity61%
Quick Market Exposure/Access55%
Avoidance of Individual Security Analysis51%
Transparency of Holdings46%
Transaction Costs40%

The difference in transaction costs is particularly evident in the fixed income landscape. During extreme market volatility in March 2020, the bid-ask spread* for the iShares High Yield Corporate Bond ETF was 48 times smaller than the underlying securities.

* A bid-ask spread measures the difference between what an investor is willing to buy a fund for (the bid price) and the price an investor is willing to sell for (the ask price). A smaller bid-ask spread indicates greater cost efficiency.

In light of these attributes, fixed income ETFs are a go-to tool for institutional investors. In fact, they were top-rated for a number of use cases.

Purpose% of Respondents
Portfolio Rebalancing62%
Tactical Adjustments66%
Derivative Complement/Replacement66%
Transition Management74%
Liquidity Management83%

One senior analyst at an asset management firm noted that it was easy to get granular with asset allocation because there are so many ETFs with plenty of liquidity.

The Future of Fixed Income ETFs

As of May 2021, fixed income ETFs made up 18% of all ETF assets under management. It’s likely that their role could become more prominent in the future.

For instance, 34% of institutional investors are likely to increase their use of fixed income ETFs going forward. One thing is evident: fixed income ETFs have proven to be flexible tools, especially during heightened market volatility.

​​Download the ETF snapshot for free.

The post Fixed Income ETFs: Investors’ Ticket to Flexibility appeared first on Visual Capitalist.

Navigating Market Volatility: Why ETFs Are Critical Tools



The following content is sponsored by iShares

Download the ETF Snapshot for free.

Why ETFs Are Critical Tools During Market Volatility

Investors experienced record-breaking volatility in 2020. During COVID-19 market turbulence, the CBOE Volatility index surpassed the previous peak seen in 2008.

In this infographic from iShares, we explore how ETFs rose in popularity during this time—and the characteristics that make them particularly useful during market volatility.

The Methodology

To assess how institutional investors navigated this volatility, Institutional Investor published a report in 2021 based on a survey of 766 decision makers. Respondents were from various types of organizations, firm sizes, and regions.

For instance, here is how responses broke down by location:

  • 21% Asia Pacific
  • 36% North America
  • 29% Europe, Middle East and Africa
  • 14% Latin America

Here’s what the survey found.

Rebalancing During Market Volatility

In total, 90% of institutional investors said they rebalanced their portfolios between the first and third quarter of 2020. How did they do it?

Among all financial tools, ETFs were the most popular vehicle for rebalancing. For instance, ETFs were used by 70% of investors globally, compared to the 51% who used mutual funds or derivatives.

The popularity of ETFs was evident in market activity. From January to March 2020, ETFs as a proportion of total equity trading volume increased.

 January 2020February 2020March 2020
VIX142058
ETF trading volume$95B$136B$240B
ETF as % of equity volume26%27%36%

Based on an average of daily (Read more...)