European investors favour S&P 500 ETFs ahead of Trump Presidency

Jan 16th, 2017 | By | Category: Equities
European investors favour S&P 500 ETFs ahead of Trump Presidency

European investors put a net $0.6bn of new money into the iShares Core S&P 500 UCITS ETF (LON: CSPX) during December.

If there is one key proof that corporations see Donald Trump’s agenda as a positive sign for their bottom line, then look no further than the best-selling ETF in Europe last month.

The $19.6bn (€18.4bn) iShares Core S&P 500 UCITS ETF (LON: CSPX) raised €0.6bn in December, according to new data from Thomson Reuter’s Lipper. Its healthy fundraising pushed total sales of US equities to €0.9bn, the second highest-selling category last month after European equities.

Globally, investors were initially skittish about US equities directly after Trump’s election in November, pulling out of equities and investing in bonds as they worried about possible market downturns. In December this trend reversed as investors feared rising interest rates, and instead bought back into the equity rally. CSPX is up 23.1% over 12 months in USD terms.

The President-elect also promised to cut taxes and regulation, a welcome boon for large corporations. The turnaround from fear to optimism after his election is astounding given that most Fortune 100 company CEOs did not endorse or donate to Trump during the presidential campaign, while 11 of them backed Hillary Clinton.

Trump has pledged to put “America First”, and has publicly attacked large companies that have planned to move manufacturing or outsource jobs abroad.

Whether or not Trump can take credit, he has congratulated himself for recent announcements from the likes of General Motors, Ford, Carrier and Fiat Chrysler for either investing in the US or scrapping plans in Mexico.

US equities as an asset class holds by far the highest number of assets in the whole European ETF industry at €82.1bn. Eurozone equities, second on the list, boasts just over €40bn.

While CSPX is the largest ETF in Europe at close to €16bn, the Vanguard S&P 500 UCITS ETF USD (LON: VUSD) was second on the list at around €14bn. iShares’ distributing version of the S&P 500 ETF (LON: IUSA) is in fourth place at less than €8bn.

Since 8 November there has been no sustained downturn to US equities. Any dip has been fleeting, and usually resulting from a negative tweet Trump makes public about a specific company. When, for example, the President-elect criticised airplane manufacturing firm Boeing for its “out of control” government contracts costs, its share price turned down 1% in premarket trade within hours of Trump’s negative tweet.

Excluding knee-jerk investor reactions over individual companies, the so-called Trump rally merely adds to the bull-run that started post credit crisis and shortly after President Barack Obama took office in early 2009. The rally has now continued for eight years.

For investors betting on the continued success of US equities, the aforementioned ETFs from Vanguard and iShares are not the cheapest on the list. The Source S&P 500 UCITS ETF (LON: SPXP) only costs 0.05% compared to 0.07% for each of the iShares or Vanguard funds.

Trump is inaugurated on 20 January, and will inherit record-low unemployment and record-high stock markets.

One unnamed US-based financial adviser warned that US stocks appeared overvalued.

“We have increased our cash positions in an anticipation of a market selloff,” he told On Wall Street.

The US rally has come at the expense of other countries, particularly emerging markets. Global emerging market equities were the worst-selling asset class in Europe last month, shedding more than €500m, Lipper found.

The asset class now holds around €20bn under management in European-listed ETFs, a quarter of that of US equities.

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