Flow & Tell with iShares | February 2024 ETF Flows

February brought us dramatic rate repricing, new all-time highs for the S&P 500, and unreasonably expensive prix fixe menus on the fourteenth. Here’s what that backdrop spelled for ETF flows across the month:

The start of a calendar year often signals a rebirth — new year, new me… new equity market leadership? Two months in, however, no such pivot has materialized, in either price action or flows. While flows and performance historically move in tandem, this trend becomes more pronounced when investors, and markets, continue to reward the same pockets month after month (after month, after month…). Instead of Info Tech being so last year, the sector led inflows on the month (and the year), netting nearly four times as many assets as the second-place sector.¹

This trend was not limited to sectors — last year’s favored regions are yet to leave the spotlight. Japan’s Nikkei 225 returned a standout 28% in 2023, only to continue climbing in the new year: so far, the country’s benchmark has surged 17% this year, with February lifting the index to its first new all-time high in over 34 years.² Investors doubled down in the flows universe, with Japan ETFs adding over $1.2bn on the month as the most popular single-country exposure, after earning the same accolade last year.³

The newly minted spot bitcoin ETFs continue their day (or 50) in the sun. While bitcoin prices initially declined in the weeks following launch date, February reversed the negative trend, surging over 40% on the month.⁴ The ETFs collected inflows, with the cohort adding over $6.6bn on the month.⁵ IBIT (iShares Bitcoin Trust) netted the lion’s share, over $4.5bn, the second most popular ticker in BlackRock’s lineup of 425 U.S.-listed ETFs and contributing to 37% of net flows in February.⁶

Even more eye-popping have been volumes: IBIT’s average 30-day volume puts it in the top 0.6% of all U.S.-listed ETFs.⁷

While digital stores of value continue to surge in popularity, their traditional counterparts have declined. Gold ETFs have been in outflow mode since the start of the year, seeing over $2bn in outflows in February.⁸

This time last year, investors were shopping overseas: international exposures dominated equity inflows while U.S. flows dipped negative as investors braced for recession. The past twelve months have radically altered that backdrop — China’s anticipated reopening was met with dampened spirits, eurozone growth stalled, all while the U.S. economy powered full steam ahead.⁹

The result was a pronounced geographic rotation in fund flows. So far this year, U.S. exposures have netted 70% of total equity inflows¹⁰, matching their heftier domestic weight in broad international indexes. The U.S. now makes up over 70% of the MSCI World Index, a new record, and a sizeable jump from its 60% weight just seven years ago.¹¹

The story of greater concentration at the top applies within the U.S. equity markets as well: in February, the weight of the top five names in the S&P 500 set a new record at 26% of the index.¹² Similarly, the Nasdaq with its AI-backed high-fliers saw the top five represent nearly a third of the total index.