Oil drop and Fed hint send funds into Vanguard ETFs

Investors moved large amounts into low-cost broad-market equity ETFs this week after oil prices fell and the Federal Reserve signaled rates may stay higher for longer.

Early in the week an agreement to reopen shipping through the Strait of Hormuz reduced energy risk and coincided with a drop in oil prices.

Vanguard funds led inflows, taking seven of the top 10 spots by net new money. Vanguard Mid-Cap ETF (VO) received about $6.8 billion. The SPDR Portfolio S&P 500 ETF (SPYM) added roughly $4.3 billion, Vanguard Small-Cap ETF (VB) took in $4.2 billion and Vanguard Value ETF (VTV) gained about $3.8 billion.

Investors increased allocations into small- and mid-cap funds after the oil decline, a shift linked to lower input costs for companies sensitive to energy prices.

The Federal Open Market Committee met on Wednesday. Federal Reserve Chair Kevin Warsh left the policy rate unchanged and indicated further hikes were possible. The committee noted economic activity was “expanding at a solid pace.” After the meeting, tech-heavy and high-valuation sector funds saw outflows.

The Technology Select Sector SPDR ETF (XLK) recorded about $412.3 million in outflows and the Direxion Daily Semiconductor Bull 3X ETF (SOXL) had approximately $614.7 million exit.

Outflows also concentrated in defensive income and short-term cash alternatives. The iShares Gold Trust (IAU) lost about $900.2 million and the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) shed roughly $800.8 million.

Dividend-focused funds experienced withdrawals as well. The WisdomTree US Quality Dividend Growth Fund (DGRW) gave up about $850.2 million, and the Pacer Global Cash Cows Dividend ETF (GCOW) fell by $789.4 million, equal to 19.4% of that fund’s assets.

Low-fee, broad-market ETFs recorded the largest net inflows of the week while defensive and concentrated sector funds saw notable net outflows.