What’s Going On Here?Data out late last week showed that investors – jonesing for a fix of safe investments – have been buying into cash at their fastest pace since April last year. What Does This Mean?Investors have been feeling skittish recently, what with coronavirus cases and fresh lockdowns on the rise in Europe again. And if that wasn’t enough to deal with, they’ve been casting a wary eye toward potential rises in inflation too, which risk leading to stock-damaging interest rate hikes.
So in an effort to put their minds at rest, investors have started moving their money into safer investments. For starters, they parked $46 billion in cash funds last week alone. And just to be extra careful, they’ve been investing heavily in the types of US government bonds whose prices move in line with inflation, which should protect them even as their buying power drops off. Why Should I Care?For markets: Tech stocks are out, energy and banks are in.
Those inflation fears might also be why investors pulled money out of tech-focused funds last week for the first time since September. Higher inflation, after all, often comes with an uptick in economic growth, which should benefit stocks that are economically sensitive – like those of banks and energy companies – more than those that aren’t, like tech. That’s reflected in share price moves this year too: US energy and banks stocks have outperformed tech stocks by 33% and 16% respectively.
The bigger picture: Investing in fads might just be a fad.
Investors also seem to have taken a fancy to thematic exchange-traded funds – that is, ETFs focused on major trends like renewable energy and gender equality. Investors put $43 billion into those funds in January and February – more than three times as much as the same period last year. But tread carefully: one study has found thematic ETFs underperform the stock market by an average of 4% a year for at least five years after they launch. | 