Heather Bell, ETF.com Managing Editor
ETF inflows were robust during the month of November, even though there was a cooling off from October’s pace. Investors added $35.5 billion to U.S.-listed ETFs in November―down from $55.9 billion the previous month. The data, courtesy of FactSet, also showed that year-to-date inflows hit a new annual record at the end of November, reaching $423.3 billion.
U.S. equity ETFs led the other asset classes, with inflows of $17 billion. Rising hopes that Congress may pass tax cuts by the end of the year fueled enthusiasm for U.S. stocks, which surged to fresh records during November. Only three asset classes—commodities, currencies and inverse ETFs—saw outflows during the month, and only currency ETFs saw outflows year-to-date.
International equity ETFs was another category that saw strong interest, garnering inflows of $12.1 billion during November. The MSCI all-country index rose for 13-straight months through November, the longest streak on record, according to Reuters.
Meanwhile, U.S. and international fixed-income ETFs had combined inflows of more than $6 billion last month, even as bonds sold off and yields ticked up. The U.S. 10-year Treasury yield touched 2.44% on Nov. 30, up from 2.38% on Oct. 31.
Low-cost, broad-market ETFs continued to dominate inflows in November. The iShares Core S&P 500 ETF (IVV), the Vanguard S&P 500 ETF (VOO) and the iShares Russell 2000 ETF (IWM) were at the top of the heap, with inflows ranging from $2.7 billion for IVV down to $1.6 billion for IWM.
A pair of smart-beta ETFs, the iShares Edge MSCI Min Vol USA ETF (USMV) and the iShares Edge MSCI USA Momentum Factor ETF (MTUM), also made the top 10 list for the month, pulling in $1.2 billion each. Those funds come with expense ratios of just 0.15%, which is at the low end of the cost spectrum for the smart-beta space.
On the other hand, the SPDR S&P 500 ETF Trust (SPY) was the biggest loser of the month, with outflows of $5.3 billion. At an expense ratio of only 9 basis points, the world's largest ETF is still more than twice the cost of IVV and VOO, which also track the S&P 500.
The iShares 20+ Year Treasury Bond ETF (TLT) and the SPDR Bloomberg Barclays High Yield Bond ETF (JNK) were two other funds to lose favor last month, with outflows of $1.4 billion and $807 million, respectively.
For a full list of the top inflows and outflows for November and for asset classes year-to-date, see the tables below:
Bitcoin Drawing ETF Investor Attention
However, the most chatter in the ETF space has no doubt been about an asset that doesn’t yet have an ETF tied to it. Bitcoin has been blasting through records, crashing past $11,500 over the weekend as investors waited to hear about the launch of bitcoin futures, expected this month. News this morning announced the launch of Cboe futures on Dec. 10 and CME futures on Dec. 18.
An online webinar led by Matt Hougan, CEO of Inside ETFs, last week took on key questions about bitcoin and its stunning rise, with input from a trio of experts.
Gabor Gurbacs, director of digital asset strategy for VanEck, which plans to launch its own bitcoin ETF eventually, said that bitcoin may be in a bubble after its rapid price appreciation, but that longer term, there may be more upside. If you consider bitcoin to be digital gold, he says it makes sense to compare it to the metal.
In that case, bitcoin's market cap of around $200 billion is only a fraction of the $8 trillion worth of gold in existence. To match gold, bitcoin would need to rise another 4000%.
Another framework to value bitcoin is comparing it to M1—the total quantity of currency in circulation.
"If you look at the list of countries and their M1s, bitcoin is the 21st-largest country. In M1 terms, bitcoin is bigger than Mexico, Venezuela and Denmark. It's very close to Poland and Russia, but it doesn't approach the M1 of U.S., China or Japan," Gurbacs explained.
Jan van Eck, CEO and president of VanEck, another panelist on the webinar, is enthusiastic about the technology behind bitcoin, but understands why people may be skeptical.
"It's a little bit like gold, a store of value, versus an asset that will generate a revenue stream like a bond or stock with dividends," he said.
Meanwhile, another panelist on the webinar, Raj Lala, president and CEO of Evolve ETFs, is in the process of launching Canada's first bitcoin ETF, pending approval from regulators.
"The bubble question is tough, because this is a very new asset class people are trying to get their head around," Lala said. "I don't think I've ever seen anything in the last five years that's had such a polarized view as cryptocurrencies or bitcoin does. You see people calling for bitcoin at $40,000 by the end of 2018, and you see people calling for $400 by the end of 2018."
Regardless of where one thinks bitcoin prices are headed, it doesn't look like interest in bitcoin or cryptocurrencies in general is going away anytime soon. Financial advisors can expect to increasingly hear from their clients about buying into the craze. According to van Eck, advisors shouldn’t ignore the blockchain technology driving bitcoin and other cryptocurrencies. He advises a small and well-diversified allocation to digital assets for long-term aggressive investors of 0.5-1% of their overall portfolio.
Heather Bell can be reached at email@example.com
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