The tumultuous opening weeks of the Trump administration saw investors scrambling into bonds and overseas stocks while the record-breaking hot streak for U.S. equity funds slowed.
Exchange-traded funds that buy U.S. stocks took in $76.6 billion in the two months following the election, reflecting the view that large U.S. firms would benefit from a surge in economic growth. Now sentiment is shifting. Inflows fell to $9.8 billion in January as investors looked elsewhere.
“We’ve had a bull market for two months and now it’s slowing down,” said Mojit Bajaj, director of ETFs for WallachBeth Capital. “The weaker dollar is making people get out of U.S. stocks and into foreign markets and fixed income.”
President Donald Trump has used his first days in office to focus on trade, immigration and the rollback of financial rules, tempering expectations that his administration will boost infrastructure spending, spurring growth and inflation. At the same time, sluggish U.S. wage growth means the Federal Reserve is less likely to immediately raise interest rates, making bonds more attractive.
Bond ETFs enjoyed a resurgence in January, taking in more than $15.5 billion so far this year, led by the Vanguard Intermediate-Term Corporate Bond ETF and the iShares iBoxx Investment Grade Corporate Bond fund, according to FactSet.
“After the election, people thought the bond trade of the last 30 years was over because you have this administration focused on cutting taxes and spurring growth,” said Nicholas Colas, chief market strategist for Convergex, a global brokerage firm. “That trade has kind of stalled out.”
He said investors are shifting to developed an emerging overseas markets because they have underperformed for years and seem ripe for a comeback.
ETFs that invest in international companies garnered $11.8 billion in January, the highest since May 2015, according to Morningstar, Inc.
Two of the most popular ETFs so far this year are the iShares Core MSCI Emerging Markets ETF and the iShares Core MSCI EAFE fund, which focuses on companies in Europe, Australia and Asia, according to FactSet. The funds took in a record $1.7 billion each in January, and assets in both ETFs are at all all-time high, according to Morningstar.
“In those markets, there’s a lot of real value,” Mr. Colas said.