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GICS Sector ETF Flows: Resilience in Financials, but What Happened in Energy?

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Financials see strong inflows despite weak NFP

US GICS (global industry classification standard) sector ETF flows reflected event-specific positioning during the trading week ending June 3, 2016. But notably, financials (XLF) saw the largest inflows among sectors, suggesting investor expectations of a strong jobs report.

Logically, a solid NFP (non-farm payroll) would have boosted interest rates, leading to increased expectations of wider profit margins. Financial heavyweights such as J.P. Morgan (JPM) and Wells Fargo & Company (WFC) rose by 0.6% and 0.5% until Thursday but plummeted on Friday with the financial sector (XLF) as a whole. But the change in flows in XLF from Thursday until Friday’s close, inflows didn’t reverse, which suggests that “panic selling” did not occur.

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Outflows

In terms of significant outflows, the energy sector (XLE) stood out. The ETF gave up 0.9% on the week ending June 3 as OPEC (Organization of Petroleum Exporting Companies) rejected a proposal to implement a new production ceiling. In contrast to financials, however, the decline in energy stocks was supported by the largest outflows among sector-specific ETFs, implying little investor confidence from the angle of fund flows.

The theme of “cautious optimism” on the sector-specific ETF level mentioned in last week’s commentary didn’t continue. Fund flows were not clearly divided into cyclical sectors, such as consumer discretionary (XLY) or materials (XLB) and defensives, including consumer staples (XLP). This supports the aforementioned shift in focus to a more event-driven market.

Now let’s take a look at what happened within the cross-asset ETF space.

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