The ETF Halftime Report

Episode Summary

Executive Summary: Bloomberg’s Trillions examines first-half 2018 ETF flows, showing a market rotation toward cheap, broad, and defensive products after early volatility, with Warren Buffett’s Apple comments helping revive U.S. equity demand. Todd Rosenbluth joins Joel Weber and Eric Balchunas to explain what’s driving inflows, outflows, and performance.

Main Topics: First-half ETF flow picture (Priority: 5/5): ETF inflows slowed vs. 2017, but still stayed positive in a tougher market. Buffett as a market catalyst (Priority: 5/5): Warren Buffett’s Apple remarks helped shift flows back toward U.S. equities. Cheap core products dominate (Priority: 5/5): Low-cost iShares, Vanguard, and Invesco ETFs captured most new money. Flight to short-duration safety (Priority: 4/5): Investors piled into cash-like and short-term bond ETFs as rates rose. Outflows from rate-sensitive funds (Priority: 4/5): SPY, LQD, high-yield, and REIT funds saw money leave amid rate pressure. Performance concentrated in growth themes (Priority: 3/5): Internet and small-cap healthcare ETFs led returns, alongside a cocoa ETN spike.

Key Arguments: Low-cost ETFs won because investors wanted broad exposure at minimal fees. Buffett’s Apple buy comments helped re-ignite U.S. equity ETF flows in May. International developed markets led inflows as investors rotated away from U.S. home bias. Short-term and ultra-short bond ETFs became a flight-to-safety trade during volatility. Higher rates hurt long-duration bond funds like LQD and income proxies like VNQ. Performance winners were concentrated in internet, biotech, and niche commodity products.

Data Points: ETF flows year-to-date: $127 billion - ETF inflows through midyear 2018 ETF flows same time last year: almost $200 billion - Comparison for midyear 2017 ETF flows last year: $486 billion - Full-year 2017 ETF inflows IEFA inflows: $17 billion - Top inflow leader in the first half IEFA asset increase: 40% increase on assets - Reflects size of inflow into developed international ETF EFA outflows: $5.6 billion - Large trade moving assets from more expensive EFA into IEFA IEMG inflows: $7 billion - Second major inflow leader, emerging markets low-cost ETF SHV inflows: $6.2 billion - Cash-like short Treasury ETF attracted safety flows Short-term and ultra-short term debt ETFs inflows: about $24 billion - Combined inflows across the category Momentum ETF weighting in tech: 41% - M-T-U-M had heavy technology exposure SPY outflows: $19 billion - Largest ETF saw major redemptions despite high January inflows LQD outflows: $4.5 billion - Investment-grade corporate bond ETF suffered rate sensitivity LQD organic negative growth: 11% - Outflows as share of assets VNQ outflows: $2.5 billion - Real estate ETF saw money leave as yields rose PSCH year-to-date return: 29.4% - Top-performing ETF in the period XWEB year-to-date return: 29% - Second-best performer, internet ETF FDN year-to-date return: 25% and change - Another internet ETF among top performers FDN 10-year performance: 502% - Long-run internet ETF outperformance Market 10-year performance: 161% - Reference benchmark comparison for FDN NIB year-to-date return: 22.8% - Cocoa ETN appeared near the top of performance rankings NIB 5-year performance: down 8% - Shows long-term drag from futures rolling

Pivotal Quotes: "The future isn't scary. Not realizing its potential, however, could be." — Invesco QQQ ad: Opening sponsorship message "It's every year, it's almost like a horse race. You know, it's year-to-date flows." — Eric Balchunas: Framing ETF flows as a competition "This is what we talked about a couple of weeks ago with Martin Small, what I call the four-headed monster." — Eric Balchunas: Describing dominant low-cost core ETF products

Implications: The remaining year likely depends on whether rate pressure eases and whether investors keep favoring cheap core funds over higher-cost, duration-heavy products.