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Category ETFs: Off to New Safe Havens

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Jul. 6 2016, Published 8:47 a.m. ET

Risk-averse investors stock up on fixed income and gold

US equity markets have recovered from the declines on Monday, June 27, 2016, after the Brexit vote. But it looks like investors are remaining cautious since money is flowing into safe havens, including bonds and gold.

The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) saw the largest inflow, with investors aggressively pouring nearly $1.2 billion into the ETF. The heavy demand for high-yield corporate bonds during risk-off periods is a remarkable shift in the perception of risk-reward expectations within fixed-income markets.

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Let’s remind ourselves that HYG still holds ~50% of BB-rated corporate bonds, with the remainder allocated to B-rated and CCC-rated corporate debt. However, the recent strong inflows indicate that investors are willing to take on additional investment risk in return for higher yields as Treasury yields around the world continue to fall.

The shift in risk perception was also seen in last week’s ~1.5% upside move. While HYG certainly saw the strongest inflows, money also poured into other fixed-income ETFs. These included the iShares Short Treasury Bond (SHV), the iShares iBoxx $ Investment Grade Corporate Bond (LQD), and the iShares Core US Aggregate Bond (AGG).

The above graph demonstrates that gold has also reclaimed its safe-haven status. The SPDR Gold Trust (GLD) saw another week of strong inflows. It rose for the fifth consecutive week.

The largest outflows within our ETF universe were seen in US equities. The SPDR S&P 500 ETF (SPY) witnessed the largest outflow by far. It was followed by the Financial Select Sector SPDR ETF (XLF). However, as we saw in Part 1 of this series, the outflows in SPY should be treated with caution.

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