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ETF Wrap: ETF investors flock to TIPS. Are they ‘late to the party’?

Hello! This is markets reporter Christine Idzelis stepping in today for MarketWatch’s Mark DeCambre to bring you this week’s ETF Wrap. 

Investors poured capital into U.S. exchange-traded funds in October, based on a report this week from State Street Global Advisors and a conversation with the firm’s head of SPDR Americas Research, Matthew Bartolini.

“TIPs have just been absolutely smashing records,” Bartolini told MarketWatch, with investors flocking to ETFs that provide exposure to U.S. Treasury inflation-protected securities amid fears over the rising cost of living in the pandemic.

You’ll also get a look at a new climate ETF from Impact Shares and the United Nations that began trading this week as world leaders gathered in Glasgow for the U.N.’s COP26 summit, with the aim of curbing global warming by cutting carbon emissions.

But first, here’s your weekly screen of the biggest ups and downs in ETFs, including a pair of clean energy funds that ranked among the top moves higher.

Sign up here for ETF Wrap.

The good…

Top 5 gainers of the past week

%Performance

Amplify Transformational Data Sharing ETF
BLOK,
-0.73%

12.5

Invesco WilderHill Clean Energy ETF
PBW,
+0.10%

10.2

First Trust NASDAQ Clean Edge Green Energy Index Fund
QCLN,
+1.15%

10

SPDR S&P Semiconductor ETF
XSD,
+1.70%

9.2

Invesco Dynamic Semiconductors ETF
PSI,
+2.38%

8

Source: FactSet, through Wednesday, Nov. 3, excluding ETNs and leveraged productsIncludes NYSE, Nasdaq and Cboe traded ETFs of $500 million or greater

…and the bad

Top 5 decliners of the past week

%Performance

VanEck Junior Gold Miners ETF
GDXJ,
-0.32%

 -4.8

VanEck Gold Miners ETF
GDX,
-0.11%

-4.7

iShares MSCI Brazil ETF
EWZ,
-2.95%

-4.3

Global X Silver Miners ETF
SIL,
-0.96%

-4.3

ETFMG Prime Junior Silver Miners ETF
SILJ,
-0.69%

-4.2

Source: FactSet

TIPS win in bond ETFs 

Equities led inflows into U.S. ETFs in October, but within fixed-income, TIPS funds came out ahead in capturing capital from investors, according to State Street. The firm’s report shows that investors added a record $6 billion to Treasury-inflation-protected-securities ETFs in October.

That was surprising as “financial advisors were all on the TIPS story in May,” said Dave Nadig, director of research at ETF Trends, in a phone interview. “Most financial advisors figured out what their inflation positioning was throughout the summer” and earlier this fall.

“There’s an old saying in the TIPS market that ‘by the time you’ve bought TIPS, it’s too late,’” said Nadig. “Anybody who is just waking up to the idea,” he said, “is very late to the party.”

State Street’s Bartolini cautioned that TIPS, like nominal Treasuries, are bonds with “duration risk,” meaning changes in interest rates still “drive performance.” Using a cash position to buy TIPS to hedge against inflation is “opening your portfolio up to duration risk,” which is different from a relative value trade involving the sale of nominal Treasury exposure in favor of TIPS, he said.

“If say, a year ago your investment thesis was to not own U.S. Treasuries, and instead own TIPS,” said Bartolini, that “would have been a very profitable trade.”

The Federal Reserve said Wednesday that it will begin tapering its monthly purchases of Treasuries and mortgage-backed securities — an emergency program that it began last year after the pandemic wreaked havoc in markets — but kept its benchmark interest rate near zero.

See: Fed slows down bond buying, says factors boosting inflation are expected to be transitory

Hunting for more yield in junk debt

Elsewhere in fixed income, investors reached for yield in junk territory. Leveraged loan and high-yield ETFs saw a combined $2.6 billion of inflows in October, while investment-grade corporate funds saw $668 million of outflows, according to the State Street report. 

Read: Easy money in junk debt markets helps borrowers, but are investors risking too much in a reach for yield?

“The $1.8 billion of inflows into high yield is the most since November of 2020,” said State Street. Bank loan ETFs, which buy leveraged loans, have now seen inflows for 13 months straight, according to its report.

STATE STREET GLOBAL ADVISORS REPORT

In a separate stretch of inflows, stock sector ETFs have pulled in capital for a record 13 consecutives months, according to State Street. Technology and cyclicals led in October, with investors showing interest in financials
XLF,
-1.80%
,
energy, consumer discretionary
RCD,
+0.26%
,
and real estate, the firm found.

STATE STREET GLOBAL ADVISORS REPORT

Impact Shares MSCI Global Climate Select ETF

Impact Shares, a nonprofit fund sponsor backed by The Rockefeller Foundation, announced Wednesday that Impact Shares MSCI Global Climate Select ETF
NTZO,
+0.50%

began trading on the New York Stock Exchange.

“We have no fossil fuels,”  Ethan Powell, founder and chief executive officer of Impact Shares, told MarketWatch of the new ETF’s holdings.

“For the last several months, we’ve been working with MSCI,” as well as a group of 30 large, influential financial institutions that was established by the United Nations, to create an ETF that helps investors become part of the global push toward net-zero carbon emissions, said Powell. 

The group, called the Global Investors for Sustainable Development Alliance, includes the California Public Employees’ Retirement System and firms such as Allianz , Citigroup
C,
-3.19%

and Bank of America
BAC,
-2.88%
,
he said. The new ETF, launched in collaboration with the United Nations Capital Development Fund, is based on the MSCI ACWI Climate Pathway Select Index, according to the Impact Shares announcement. 

“We select those companies that have the most compelling net zero commitments,” said Powell.

Checkout these ETF reads from this week:

US Lawmakers Call for Bitcoin Spot ETF in Letter to SEC Chair Gensler (CoinDesk)

Cathie Wood’s Flagship ETF Buys More Zillow Shares Amid Steep Drop (WSJ)

Novogratz’s Galaxy Assets Surge as Canadian Ether ETF Booms (Bloomberg)

Simple, low-cost ETFs lead race for investors’ cash  (FT)

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