This is a general article focused on ETFs. What is so interesting is the focus that commodities are given. Especially at the bottom where Jeffery Gundlach said “”Commodities have put in a massive multidecade double bottom. They bottomed at the end of 2015. If you’re all financial assets and no real assets, you might want to peel off a piece and put it in a commodity fund.”
By Heather Bell
ETF.com Managing Editor
Inflows into ETFs continued at a blistering pace during the week ended Feb. 2, continuing a trend of strong inflows that saw more than $40 billion flow into ETFs for all of January. Keep in mind that January 2016 saw just $350 million in inflows.
The week ended last Thursday, which includes data from January, saw flows of $11.7 billion moving into U.S.-listed ETFs, according to FactSet. Of that, $5.3 billion went into U.S. equity ETFs; $3.6 billion went into U.S. fixed-income ETFs; $1.9 billion went into international equity ETFs; $460 million went into international fixed-income ETFs; and $420 million went into commodity ETFs.
The week’s across-the-board buying of ETFs took place as the S&P 500 neared its recent record highs and the U.S. 10-year bond yield remained flat week-over-week.
From QQQ To GLD
In terms of individual flows, there wasn’t any one ETF that was far ahead of the pack during the week, but there were many that had creations in the $300 million to $1 billion range. The tech-heavy PowerShares QQQ Trust (QQQ) was at the top of the heap, with inflows of $924 million.
Other equity ETFs in the weekly top 10 included the Vanguard FTSE Emerging Markets ETF (VWO), with inflows of $583 million; the iShares Russell 2000 ETF (IWM), with inflows of $440 million; and the iShares Core S&P Mid-Cap ETF (IJH), with inflows of $421 million.
Among the three fixed-income funds on the list was the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), which took in $760 million. The SPDR Gold Trust (GLD) was the sole commodity ETF on the list, with creations of $473 million. Gold prices rose more than 2% during the week.
Sectors See Outflows
On the other side of the ledger, a handful of sector funds registered notable outflows during the period. The Industrial Select Sector SPDR Fund (XLI), the Technology Select Sector SPDR Fund (XLK), the Vanguard REIT Index Fund (VNQ) and the Consumer Staples Select SPDR Fund (XLP) had outflows of $150 million to $300 million each.
Meanwhile, the iShares iBoxx $ High Yield Corporate Bond ETF (HYG), with outflows of $287 million saw the biggest loss of the three fixed-income ETFs to make the list. And the VelocityShares Daily Inverse VIX Short-Term ETN (XIV) saw outflows of $151 million, representing 22.8% of its assets under management, the largest percentage decrease on the list.
For a full list of the week’s top inflows and outflows, see the tables below:
Key Takeaways From Gundlach’s Annual Webcast
A few weeks ago, bond guru Jeffrey Gundlach held his annual webcast, where he shared his outlook for financial markets in 2017. The presentation, titled “Just Markets,” featured a number of bold calls by the outspoken founder of DoubleLine Capital.
For investors looking for actionable ideas, Gundlach’s webcast was a treasure trove. He wasn’t shy about recommending areas of the market to buy and areas to avoid. Below are some of his key themes:
Wall Street Too Bullish On US Equities: “I do not share the consensus view that you should be all-U.S. in your equity portfolio―far from it,” said Gundlach. “This is one of the periods you should start diversifying.”
Gundlach pointed out that the cyclically adjusted price-to-earnings ratio (CAPE ratio) is at 25 for U.S. stocks. For developed markets excluding the U.S., it’s at 14; for emerging markets, it’s at 10. With valuations so much lower elsewhere, “you should peel off a part of your U.S. stock exposure and move internationally,” he explained.
Emerging Markets Due For Some Outperformance: Gundlach likes emerging markets. He said EM stocks could outperform the S&P 500 in 2017. If that happens, emerging market ETFs such as the Vanguard FTSE Emerging Markets ETF (VWO) and the iShares Core MSCI Emerging Markets ETF (IEMG) are a better bet than the SPDR S&P 500 ETF (SPY).
Gundlach also mentioned two countries he’s bullish on: India and Japan. The former is a country he’s mentioned in the past; he likes it secularly because of favorable demographics and the prospect of economic reforms that will take place gradually in the years to come.
As for Japanese stocks, Gundlach said he’s bullish on them because Abenomics is supportive, and there’s “tremendous automatic buying from pension plans, the central bank and buybacks.” He also said the yen will continue to weaken more. Thus, he recommends hedging currency exposure for investors buying Japanese stocks.
Rising Rates? Shorten Duration: From the start, Gundlach was clear in his expectation that bond yields would rise for a third year in a row. Part of that has to do with the Federal Reserve, which Gundlach expects to hike rates two or three times in 2017. Part of it also has to do with rising growth and inflation expectations.
Longer term, Gundlach expects even higher rates. He reiterated his surprising call, originally made during the middle of last year, that the 10-year Treasury yield could be at 6% four or five years from now. Gundlach emphasized that in the rising-rate environment he envisions, shorter-duration bonds and bond funds will be a better bet than longer-duration bonds and bond funds.
Gundlach also said that TIPS and nominal bonds were at parity in terms of their attractiveness, predicting strong investor inflows for TIPS ETFs such as the iShares TIPS Bond ETF (TIP). Emerging debt is another space Gundlach likes, and he specifically singled out the iShares JP Morgan USD Emerging Markets Bond ETF (EMB).
He pointed out that investment-grade corporate bonds have massive durations and indicated that flows into the space will be “challenged.” Gundlach also warned that junk bonds are not immune to interest-rate hikes and that they will not be going up in price if interest rates move up.
“The spread has tightened to the point where the cushion of safety has been virtually, if not entirely, eliminated,” he said.
Don’t Exclude Commodities: Despite a lack of strong convictions about oil and gold in 2017, Gundlach had positive things to say about commodities as a whole: “Commodities have put in a massive multidecade double bottom. They bottomed at the end of 2015. If you’re all financial assets and no real assets, you might want to peel off a piece and put it in a commodity fund.”