Year-End Rotation Into Out-Of-Favor Issues?

Despite a horrible first quarter in 2020, when the average equity and fixed income fund (including ETFs) lost 22.33% and 4.56%, respectively, both asset classes were able to finish the year on strong footing, posting one-year returns of 15.63% and 5.28%, respectively.

Even the average mixed-asset (target date and target risk) fund managed to put together a handsome 12.26% one-year return. Not bad, considering the ground that needed to be retraced before the funds could move into positive territory.

However, there is still a ton of cash sitting on the sidelines, waiting for the other proverbial shoe to drop. By Dec. 31, 2020, estimated net flows into U.S. domiciled money market funds had reached $653.9 billion (based on preliminary year-end numbers), down from the $1.120 trillion pinnacle reached in May.

Conventional fund investors appeared to shrug off the strong rebound in equities, redeeming a net $532.6 billion during 2020, with conventional large-cap funds (-$295.1 billion) suffering the largest exodus (in spite of the average large-cap fund returning 21.78% for the year), bettered by international income funds (-$119.6 billion) and small-cap funds (-$32.3 billion).

Conventional fixed income funds continued to attract net new money during 2020, with taxable bond funds taking in $105.6 billion and tax-exempt bond funds attracting some $26.9 billion.

However, exchange-traded funds continued to be the go-to instrument for all the asset classes. For 2020, equity ETFs took in $196.7 billion, while their taxable and tax-exempt fixed income counterparts attracted $178.7 billion (their largest one-year net inflow going back to 2002, when the first fixed income ETF began trading) and $12.0 billion, respectively.

As reported in the mainstream media over the last half of the year, much of the rally in equities was attributed to large tech and “stay-at-home” stocks. But since the creation and recent distribution of a COVID-19 vaccine and reopening of the global economies (albeit in fits and starts), a rotation out of the high-flying tech issues and into more out-of-favor stocks has begun.

1 2
View single page >> |

All names and marks owned by Thomson Reuters, including "Thomson", "Reuters" and the Kinesis logo are used under license from Thomson Reuters and its affiliated companies.

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.


Leave a comment to automatically be entered into our contest to win a free Echo Show.