ETF Investors Shrugging Off Geopolitical Issues

ETF investors continue showing resilience despite ongoing economic obstacles, according to a new report from CFRA.

An analysis of investor flow patterns showed evidence of optimism even against the backdrop of a 4% decline by the S&P 500 Index in April, as well as increasing global geopolitical unrest.

U.S.-listed exchange-traded funds took in $265 billion this year through May 13, including $51 billion over the 30 days leading up to that date, the report said.

Aniket Ullal, head of ETF data and analytics at CFRA, said the fact that growth-oriented equity ETFs represented 55% of the inflows during a period that included April’s market pullback shows that “investors are not in a risk-off mindset.”

“The ETF flow data and our fundamental outlook, told us we were still bullish on the market,” said Ullal, a member of the etf.com editorial advisory board.

ETF Investors Stay the Course

The S&P 500, as measured by the SPDR S&P 500 ETF Trust (SPY), has gained 12% so far this year, including a slump last month sparked by fears over the stubbornness of inflation and the Fed’s inability to address it.

Over the 30-day period through May 13, defensive-oriented ETFs stood out, with the Utilities Select Sector SPDR ETF (XLU) gaining more than 11% and the Consumer Staples Select Sector SPDR ETF (XLP) gaining nearly 6%, CFRA said.

“We found a lot of active funds with exposure to utilities and consumer staples that were among the best performers in April,” Ullal said.

Other sectors that held up during the pullback included financials, healthcare and materials.

“Factor and thematic ETFs that had tilts towards these sectors outperformed the broader markets in recent weeks,” Ullal said.

Looking beyond just the volatility of April, the report highlights the strength this year of shipping and cargo themed ETFs, which represent a proxy for international markets at a time when at least two wars are in the headlines.

The SonicShares Global Shipping ETF (BOAT) is up 24% this year and the U.S. Global Sea to Sky Cargo ETF (SEA) is up 18% this year.

Meanwhile, ETFs offering exposure to the U.S. transportation sector are lagging. The iShares U.S. Transportation ETF (IYT) is up 1.5% this year and the SPDR S&P Transportation ETF (XTN) is down 4.2%.

“There is more optimism around global growth this year,” Ullal said, citing projections for global merchandise volume to grow by nearly 3% this year, compared to a more than 1% decline last year.

“That’s another fundamental factor that has us bullish,” he said.

In terms of investors seemingly shrugging off the noisy geopolitical issues, Ullal said investors are sticking to the basics.

“Investors are looking at rates and profitability,” he said. “I don’t think any of the current geopolitical issues affect those factors.”