Flow & Tell with iShares | Nov 2021

Gargi Pal Chaudhuri Dec 7, 2021


November ETF flows showed that investors modestly dialed back risk and upped portfolio resilience. Flows to traditional inflation hedges picked up across asset classes, particularly in real assets, as investors embrace a non-transitory outlook for higher prices. Low liquidity in bond markets led to a surge in ETF trading around the Thanksgiving holiday as investors sought out liquidity in the ETF markets. Finally, flows into sector ETFs pointed to a more granular approach in the face of mounting volatility and uncertainty around the year ahead.


Investors seek alternative hedges against inflation.

The makeup of inflation is changing, leading investors to reposition toward real assets.

ETFs provide liquidity during recent volatility.

A jump in volatility saw investors flock to ETFs, particularly in fixed income, to hedge portfolios and manage risk against a backdrop of poor market liquidity.

Changing momentum means changing sectors.

Sector flows bear witness to changing factor leadership, a marked shift from the nature of factor investing we saw early in the year.


November ETF heat map

November ETF flows compared with index performance

Chart showing November ETF flows heat map

Source: BlackRock, Bloomberg, chart by iShares Investment Strategy. As of December 01, 2021. Flows normalized by AUM as of October 31, 2021. Index performance is for illustrative purposes only. Index performance does not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. Index performance is measured by the following indices: Oil & Gas: S&P GSCI Crude Oil CME Index; Commodities: S&P GSCI Index; Small- & Mid-Cap: Russell 2000 Index; DM ex-U.S.: MSCI World ex-U.S. Index; Financials: Dow Jones U.S. Financials Index; EM Equity: MSCI EM USD Index; U.S. Equity: S&P 500 Index; Gold: iShares COMEX Gold Trust Index; TIPS: Bloomberg U.S. Treasury TIPS Index; U.S. Treasury: ICE BofA 10-Year U.S. Treasury Index; Information Technology: MSCI U.S. Information Technology Index.


The continuation of powerful restart dynamics against the backdrop of supply chain challenges and higher wages will contribute to above trend inflation persisting into 2022, in our view. For investors, this means positioning portfolios to live with inflation and using a multi-asset framework to mitigate its impacts. We’ve already seen investors move towards insulating their portfolios against rising price pressures through typical portfolio hedges such as TIPS. However, we’ve also seen flows move towards alternative exposures such as real asset ETFs that may provide a diversified and differentiated inflation hedge.

Flows into real asset ETFs — particularly categories such as real estate, infrastructure, and commodities — continue to gather momentum against a backdrop of sustained inflation. Flows to real estate ETFs were pronounced in November;  a trend we attribute to their potential to offer high dividend yields relative to the current low yield environment, their position to benefit from the recent housing market supply shortage, and their traditional application as an inflation hedge given real estate’s tendency to preserve value in a period of rising costs. Flows to broad commodity exposures slowed over the month, but remain strong for the year, given their use as a traditional store of value while giving investors exposures to the real economy. Finally, infrastructure funds, which may benefit from upcoming fiscal spending, saw an acceleration in flows in November as the landmark bill passed from proposal to reality.

Real assets, real flows

Chart showing cumulative real estate asset ETF flows

Source: BlackRock, Bloomberg. Groupings are determined by BlackRock, Markit. Chart by iShares Investment Strategy. Data as of December 01, 2021.


November ETF trading volumes trended a bit below the year-to-date average but shifted sharply higher after the Thanksgiving holiday. In an abbreviated trading session on Black Friday, the CBOE Volatility Index (VIX) surged above 28 — a nine-month high — as investors digested holiday meals and headlines that a new COVID-19 variant had been identified in South Africa.1 Lightly staffed trading desks led to poor volumes across asset classes, particularly in high yield markets. High yield TRACE volumes, which are publicly reported aggregate statistics for high yield bond market activity, fell significantly as underlying bond liquidity dried up. Instead, investors turned towards ETFs to move risk amid the volatility. Daily trading volumes in the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) surged to over $3 billion on Friday, 50% above its 20-day average daily volume in just half the trading hours.2 The trend continued for the last days of November and across asset classes, as ETFs notched their second highest turnover day of the year to close the month. Investors also turned to the iShares 20+ Year Treasury Bond ETF (TLT) amidst the market volatility, with the fund adding over $1.0 billion in net assets during the last three trading days of the month.

Investors tend to use ETFs even more during times of uncertainty because they are efficient and effective tools for rebalancing holdings, hedging portfolios, and managing risk — particularly in less-liquid asset classes. Bond ETFs trade much more frequently than the bonds they hold, meaning their prices incorporate more real-time information. This is especially true during volatile markets as ETF trading activity increases and liquidity in the bond market declines.

ETFs don’t take a break

Chart showing volume activity in high yield markets with Omicron variant news

Source: BlackRock, Bloomberg, chart by iShares Investment Strategy. As of December 01, 2021.


Increased volatility and uncertainty have led to changes in factor and sector leadership. The first half of the year was characterized by a tug-of-war between “growth” and “value’ factors, as the start-stop nature of the economic restart gave rise to rapidly shifting expectations of growth and interest rates. However, more sluggish economic growth in the second half of the year has seen a shift in investor preferences. Investors have expressed more granular views via sectors ETFs instead of factor or style ETFs. U.S.-domiciled sector ETFs saw a sizable pickup in activity, accounting for nearly 40% of October flows and ~30% of November flows versus an average of just 16% the rest of the year.3

Inflows into information technology and health care sector ETFs accelerated in November, gathering $3.7 billion and $1.1 billion, respectively, in net assets.4 These flows show an investor preference for quality characteristics like steady cash flows and strong balance sheets, which have tended to do well in a mid-cycle environment. Financial sector ETFs struggled to hold onto assets, posting outflows of nearly $2.3 billion on the back of rate volatility.5 An example of this broader shift in sector leadership was the iShares MSCI USA Momentum Factor ETF (MTUM), which saw its underlying index rebalance last month to add exposures to health care and information technology stocks and cut exposure to financial and consumer discretionary stocks, in line with recent performance.

Shifting sector preferences

Chart showing October and November 2021 sector ETF flows

Source: BlackRock, Bloomberg, chart by iShares Investment Strategy. As of November 01, 2021.

Gargi Pal Chaudhuri

Gargi Pal Chaudhuri

Head of iShares Investment Strategy Americas at BlackRock

Kristy Akullian

Investment Strategist


Nick Morales

Investment Strategist