The biggest investing themes of 2020 have thus far been carried forward into 2021 including:
- Thematic funds for the win!: The category remains dominated by ARK with $12.8 billion additional in-flows YTD.
- Global is where it’s at!: Hopes for global synchronized growth are running very high, helping drive $41.7 billion into global and foreign funds YTD.
- Inflation is Coming!: Inflation-friendly assets including TIPS, energy, materials, and commodities seeing fervent demand totaling $12.3 billion YTD.
- U.S. Treasuries, what are those again?: Governments suffering $3.4 billion in out-flows with no in-flows on a rolling three-month basis since June 2020.
Investors’ risk-on tone persists with 75 cents of every dollar of in-flows sent into equities, the most since late 2018. Heavy stimulus and swift economic rebounds led by Asia Pacific have helped shrug off a slowing labor market.
The gap between rolling three-month flows into equities and U.S. Treasuries is widening to levels on par with December 2008, December 2013, and January 2017. All in all, investors’ fervid enthusiasm is at an extreme. Do note equities went on to perform quite well after each of these past instances.
Global equities and fixed-income assets continue to see the strongest demand on record. Improving manufacturing data both domestically and overseas has investors clamoring for foreign assets. Emerging markets garnered $17.7 billion of these flows over the past three months.
We have noted the swift jump in correlations among OECD composite leading indicators since the summer months of 2020. Global synchronized growth has become the baseline expectation for 2021.
The lion’s share of in-flows seeking sector-focused exposure have been squarely focused on energy, financials, and thematic funds. Consumer staples, an early winner during the onset of the pandemic, have been shunned.
Investors’ thirst for inflation-friendly assets has not yet been quenched. Over $30 billion has been funneled over the past three months into TIPS energy, industrials, materials, REITs, and commodities (ex-precious metals). We showed last week U.S. 5-year TIPS breakevens have produced the highest three-month Sharpe ratio on record at 7.9!
On the flip side, U.S. Treasuries have been sold across all maturities throughout the start of 2021. U.S. 30-year bond yields have climbed for the past seven consecutive days just like into the momentary top formed on January 12, 2021. Click here for the average path of yields following this same event. Nonetheless, investors have been rewarded by selling rally attempts since early August 2020. Safe assets remain heavily focused on aggregate bond funds for greater diversification.