That presidential victory by Donald Trump completely upended equity and capital markets. The doomsdayers were left with a whole lot of egg on their faces, as investors who didn’t fall for their predictions made out “bigly.”
Here, we’ll take a look at the inflows and outflows of a few ETFs that were most affected the week Donald Trump was elected president of the United States.
After Donald Trump became the president-elect, the bond market was among the segments of society that initially reacted poorly. U.S. Treasuries sold off sharply within the hours following the announcement of his win.
However, they quickly became an investment darling over the course of the week because of the buying opportunities that were presented. The yield on the 10-year Treasury note was up as much as 33.5 basis points last week, which was reported by MarketWatch as the largest weekly gain in three years.
As you know, in the bond world, when bond prices fall, their yields rise. What the market saw during the overnight hours after the election was did exactly that. For those looking to get into the bond market and pick up some high quality paper with decent yields, this is the ideal time. This is especially the case for fixed-income investors.
Stephen Laipply, a senior product strategist with BlackRock’s Fixed Income Portfolio Management Group told the following to MarketWatch.
“Investors are trying to reposition for what they believe will be the result of the new administration and a unified government, which is a more likely increase in stimulus.”
While you digest the possibility of anything like quantitative easing rearing its head again, also keep in mind the market’s sentiments about the fallout from Trump’s win. A concern is that Trump’s financial policies could cause inflation to rise, which would inadvertently hurt long-term bonds. That’s because inflation is one of the areas of the economy that Fed Chair Janet Yellen said she is eyeing as a catalyst to raise interest rates. Higher interest payments don’t mix well with the value of long-term bonds.
Following Trump’s victory, investors drained fixed-income ETFs of just under $3 billion. Most of that outflow consisted of corporate bonds. We saw the iShares iBoxx $ High Yield Corporate Bond (HYG) be drained of roughly $2.5 billion, which was the biggest outflow of any fixed income fund. The next fund that saw a significant outflow was the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD). It was drained by roughly $1.7 billion. Then there is the SPDR Bloomberg Barclays High Yield Bond ETF (JNK). It saw outflows of roughly $762 million.
The HYG and JNK funds also saw interesting inflows. Those inflows were $1.5 billion and $800 million, respectively
To get an even better idea about how ETFs responded to Trump’s win, we turned to data collected by ETF.com. In what it called a stampede, ETF.com found that investors flooded U.S.-listed funds. Those inflows totaled almost $24 billion.
The best performing ETFs were industrials and healthcare.
Be advised to tread very carefully here. Market volatility is the biggest threat to these moves in ETFs.