July 2, 2021

Pendulum Swings Back to Growth Equity Funds

by Jack Fischer.

There is no doubt 2020 and 2021 will have their own chapters, studies, and even classes in the economic, social justice, political science, environmental, and medical fields in the future. In terms of macro-economics, during the unprecedented global shutdown we’ve seen record unemployment, record federal spending, and record personal savings rates. While the U.S. added the largest amount of new jobs in 10 months (+850,000), our economy still has 6.8 million fewer jobs than the pre-pandemic era. The U.S. unemployment rate did increase to 5.9% in June (from May’s 5.8%), which can be attributed to a growing number joining the labor force and actively seeking jobs before federal unemployment benefits end in September.

The influx of new money into the population’s hands paired with increased savings and the recent reopening has produced a bullwhip-like effect on many supply chains. The ability to spend and the demand to get out and travel has led to increased prices in various sectors. The Core Personal Consumption Expenditures (PCE) Index rose 3.4% year over year in May—the largest year-over-year monthly increase since 1992. The Federal Reserve has kept interest rates low to help keep the economy rolling. The central question the market has is: when will the Fed come in and cool off a heating up economy?

During 2020’s lockdown, growth and technology issues took center stage. As an increasing number of people became vaccinated and lockdown restrictions eased, value and reopening equities saw consistent inflows. Investors saw consumer’s pent up demand to go out with their deeper pockets while forecasting rising rates could hurt the various growth companies they loved during the prior year. Recently though, thanks to the Fed’s communication of confidence in handling any oncoming inflation, investors have backed off value and reentered growth funds. Consumer confidence increased in June to the highest level since the start of the pandemic. The dance between value and growth inflows continues.

Lipper Large-Cap Growth ETFs attracted $4.1 billion over the past Lipper fund-flows week. This marks the fourth largest inflow on record. The classification has seen tremendous flow volatility this year—January (-$4.6 billion) and May (-$3.0 billion) were the largest and fourth largest monthly net outflows to date, respectively. Investors may have realized they may have overcorrected as June preliminary inflows (+$9.6 billion) are on track to be the largest ever. Lipper Large-Cap Value ETFs, on the other hand, recorded their largest inflows back in March (+$6.5 billion) and are on track for their first monthly outflow of the year in June.

Lipper Large-Cap Value ETFs posted record inflows in Q1 2021 (+$9.7 billion), while Lipper Large-Cap Growth ETFs (-$5.0 billion) suffered record outflows. This back-and-forth trend has not been exclusively for the two large-cap Lipper classifications but has revealed itself for the multi, mid, and small caps as well.

Will any indication of Fed policy tightening swing the flow pendulum back into value equities? Or will this momentum into growth continue for the foreseeable future? Only time will tell.


The below chart details the five largest weekly inflows by fund management company under Lipper Value U.S. Diversified Equity ETFs as well as Lipper Growth U.S. Diversified Equity ETFs.

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