Industry Updates

Value ETFs see huge inflows on hawkish Federal Reserve

Strong financial sector ETFs flows on hawkish Fed

Theo Andrew

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Value ETFs dominated the inflow charts last week as investors continued the early year rotation out of growth stocks amid a hawkish US Federal Reserve and a faster than anticipated economic recovery from the Omicron COVID-19 variant.

The factor has had a strong start to the year, with the S&P 500 Pure Value index returning 4.4%, versus the -4.2% returns for the growth-heavy S&P 500 index.

As is the case when interest rate hikes are imminent, bank ETFs posted strong inflows as markets priced in up to four rate hikes from the Fed in 2022, with the first anticipated in March, in a bid to combat spiralling inflation.

Both Europe and the US financial sector benefitted, with the $2.7bn iShares EURO STOXX Banks 30-15 UCITS ETF (EXX1) taking in $396m flows in the week to 14 January while the $2.3bn iShares S&P 500 Financials Sector UCITS ETF (IUFS) saw inflows of $145m.

In addition, the iShares STOXX Europe 600 Banks UCITS ETF (EXV1) and the Lyxor STOXX Europe 600 Banks UCITS ETF (BNK) both recorded $108m inflows, while the Xtrackers MSCI World Financials UCITS ETF (XDWF) saw an asset influx of $119m.

In more straight-lined value play, the $3.6bn iShares Edge MSCI USA Value Factor UCITS ETF (IUVL) recorded $259m inflows last week while the iShares Edge MSCI Europe Value Factor UCITS ETF (IEVL) saw inflows of $144m.

Elsewhere, the Xtrackers MSCI World Value UCITS ETF (XDEV) recorded inflows of $96m over the week, while the SPDR S&P Global Dividend Aristocrats UCITS ETF (ZPRG) – which has almost half of the fund weighted to financials and utilities – posted inflows of $173m.

Athanasios Psarofagis, ETF analyst at Bloomberg Intelligence, said while investors' demand for value ETFs is widespread, the question now is how long will the momentum into value stocks last?

“There is quite an interest across a wide range of value ETFs so it’s widespread demand. However, we have seen this story many times before where value starts to do well and fades off,” he said.

Value was the top performing factor in 2021 having found itself in favour since Pfizer published its vaccine results at the end of 2020.

However, investors moved to book profits they had made from their value trade in the first of 2021, reallocating towards growth-orientated stocks on strong than expected earnings for growth stocks and inflationary fears.

With several rate hikes already priced in over this year and supply chains easing it will be interesting to see if value stocks can maintain their strong start to the year.

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