28 October 2020

Investors Got Defensive and Vanguard Scored Big, September ETF Flows Show

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Investors rotated toward more defensive holdings, and continued to try to find values in sectors of the market that have been left out of 2020’s big stock-market rally, according to exchange-traded fund flows data covering the month of September.

Data from CFRA’s First Bridge database showed several notable patterns among the 20 ETFs with the largest inflows. Those are shown in the table below.

Among the trends in September: investor interest in bond funds, which has been on fire all year, cooled slightly. Only four bond funds were represented among the top 20, while eight made it onto the year-to-date top 20. And the four with the biggest gains in September represented “a tilt toward defensiveness,” said Todd Rosenbluth, CFRA’s head of mutual fund and ETF research.

There’s only one purely corporate bond fund on September’s list, and it’s ultrashort term. The rest are broad-market funds. Compare that to the year to date, when iShares iBoxx $ Investment Grade Corporate Bond ETF LQD, +0.20% is the fifth-biggest flows gainer, picking up $15.4 billion so far.

Conversely, stock fund investors in September tried, tentatively, to leave the perceived safety of big growth strategies, which have dominated this year. The iShares Edge MSCI USA Value Factor ETF and Vanguard Value ETF picked up big flows, and one out-of-favor sector, industrials, also had a strong month. It’s hard to call this the start of a real rotation, Rosenbluth said in an interview, but it’s more than a “headfake. Investors are dipping their toes in cautiously,” he added.

Also of note in September: Vanguard dominated incoming money. It had 8 of the top 20 gainers, and 43% of dollar flows.

The company tends to attract investors who are making portfolio allocation changes, not traders, Rosenbluth explained. Unlike its competitors, iShares and State Street, which can easily chart massive inflows and outflows for the same funds as traders use them for positioning, Vanguard flows “tend to be steadier” since investors are using them for buy-and-hold purposes. For the company, “this was a particularly impressive month,” Rosenbluth said.

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