Market Extra: Rotation is picking up speed, December fund flow data show

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A long-awaited rotation into value-oriented segments of the market took hold in earnest in December, according to data on flows into and out of exchange-traded funds during the month.

The report, prepared by Refinitiv Lipper for MarketWatch, shows that a shift in investor sentiment that seemed to be gathering steam in November really hit picked up speed in December.

“What we saw was investors spread their wings,” said Tom Roseen, head of research services for Refinitiv Lipper. “People had been going after the stay-at-home play and wanted to be in the big, safe names. Now, especially since we have vaccines, it’s not going to be a panacea for next month, but we are going to see slow-but-sure reopening.”

Investors plowed $59.8 billion in ETFs in December, down a bit from $91.6 billion in November. More than two-thirds of that went into stock funds, and nearly one-third into bond funds. Mixed assets and alternatives picked up small hauls, while commodity funds saw outflows.

Among segments of the market, emerging-markets funds were most popular, a sign of the risk-taking Roseen mentioned. All the safest bets of the recent past – funds focused on the S&P 500 index, large-cap core, short U.S. Treasurys – saw the biggest outflows.

ETF Classification Inflows
Emerging Markets $6.8 billion
Multi-cap Core $6.2 billion
Small-cap Core $6.1 billion
Core Bond $5.3 billion
Science & Technology $4.8 billion
Source: Refinitiv Lipper

There’s a yin and yang to economic growth, however. With faster growth comes more consumption, better household balance sheets – and, most likely, inflation. Investors are already positioning for that scenario. The December report shows that the category in 10th place was “Inflation Protected Bond Funds.”

Read next: These are the ETFs to help you prepare for a Biden presidency

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