The ETF Investor Reaction to the Election in 9 Charts

As the U.S. presidential election forced many investors to practically overnight re-evaluate their base-case scenarios for how U.S. government policies will affect global stock and bond markets, the ripples could be seen clearly among exchange-traded funds.

While short-term swings in ETF flows are often taken as reflecting moves by fast-money traders or hedging, and in some cases are distorted by ETF shares created for short-selling, the flows data nevertheless show the scope of the whipsaw and stock sector churn. 

In the charts below we'll take a look at ETF category flows just before and after the election and provide comparisons with year-to-date trends. For individual ETFs we'll take a look at the swing in flows before and after Election Day.

In the run-up to the election, investors had charted a steady course. Morningstar’s October asset flows report, showed investors extending long-standing trends of sending new money to taxable fixed income, passively-managed U.S. stock funds and exiting actively-managed U.S. stock funds.

And in the final week before the election, passively managed stock ETFs, led by the  SPDR S&P 500 ETF (SPY) and  iShares Russell 2000 ETF (IWM), continued their 2016 course of bringing in new investor dollars. At the same time, with more investors believing the U.S. economy is on somewhat firmer footing and with inflation pressures creeping higher, inflation-protected bond ETFs such as the  iShares TIPS Bond ETF (TIP) were in favor.

On the flipside, interest in high-yield bond ETFs and diversified emerging market ETFs were cooling off. Health-care ETFs extended outflows as Election Day drew near.

Then came election night, and with it, many investors found themselves scrambling to catch up to the implications of Trump administration policies, rather than those of a Clinton administration.

Perhaps the biggest whipsaw came in health-care ETFs as investors ratcheted up the odds of at least a partial roll-back of Obamacare. Between Nov. 9 and Nov. 18, the health-care category – which had assets of $37 billion on Nov. 8 - saw inflows of $3.5 billion.

Flows into financial ETFs also jumped as investors bet that a Trump administration would be more friendly to big banks.

Meanwhile, emerging market stock and bond ETF flows took a hit amid investor concerns about the impact on those regions of a Trump administration’s expected trade policies.

The sector churn could also be seen in trading volumes, where activity jumped in health-care ETFs, emerging markets and volatility funds.

Amid the post-election stock market rally, broad-based equity ETFs dominated the inflows top-ten list.

Outflows, meanwhile, were heavy among precious metals ETFs. And as the bond market sold off on expectations for a pick-up in economic growth thanks to Trump’s stimulus plans and a Federal Reserve rate increase before year end, fixed-income ETFs saw significant redemptions.