Massachusetts is known for its difficult roadways, characterized by a predilection for five-way traffic stops and counterintuitive highways. At one point, I-93 South turns into I-95 North, and we all think this is normal. Traversing these roads is akin to trying to understand the current market: Thanks to too many narratives (on- and off-ramps) combined with partial or transient information (detour signs and temporary roadways), no one can confidently say they know what is to come next.
It’s downright difficult to get a clear signal. The GPS is constantly recalculating, and information, as well as the type of data, changes day-to-day. To truly find a signal, data on economics, fundamentals, returns and COVID-19 cases must be carefully assessed—which includes removing anomalies and hyperbole.
The latest recalculation of my internal market-related GPS shows that the month of June might be our new normal life with COVID-19. After reopening, certain states have started to curb access as case rates surge, while others are getting back to normal but with extra precautions. Economic data has improved and small businesses are able to open their doors to a new, but uncertain, form of commerce.
Geographic ETF flows: Support for non-US focused ETFs
While US funds experienced the most flows, non-US focused ETFs had inflows of more than $7 billion during June, as shown below. A closer look at the data, however, indicates the flows may have been due to a single investor moving capital rather than a broader directional trend. At the regional level, 76% of the $3.7 billion flows were from one fund. Similarly, at the single country level, 95% of the $2 billion of inflows were from one fund. That said, removing these single-investor flows still leaves the respective categories in net inflow positions, along with the broader non-US category, which indicates sentiment around the space is indeed positive.
Another sign that investors are focusing on international exposures is found in emerging market (EM) flows, as the segment broke its four-month streak of outflows. EM topped US stocks by 6.7% in June, the strongest relative performance since 2012, bolstered by a better reopening of economies, a weaker US dollar and more constructive valuations.