ETF Edge

As investors ditch foreign ETFs for U.S. funds, there's a 'big contrarian call' in play, says issuer

VIDEO2:2102:21
Buyers favor US ETFs over foreign funds — SPDR Americas chief talks the shift

There's a global shift going on in the world of ETFs.

Investors have been fleeing European and emerging market funds in favor of U.S.-based exchange-traded funds in recent months, with European ETFs seeing record outflows in March amid the volatility.

Matthew Bartolini, head of SPDR Americas Research at State Street Global Advisors, said that while non-U.S. stock-based ETFs lost roughly $19 billion over the last three months, "U.S.-targeted strategies" attracted roughly $57 billion.

"It was really driven by the outflows … out of the European-focused ETFs," Bartolini told CNBC's "ETF Edge" on Monday. "I think basically what investors are doing here is ostensibly following Warren Buffett's advice and just buying America."

Buffett has expressed optimism over the U.S. economy's ability to withstand the damage done by the coronavirus pandemic, telling Berkshire Hathaway shareholders in a recent virtual meeting that "Nothing can basically stop America."

The billionaire investor has long backed U.S. investments as havens in times of crisis, writing in a 2008 op-ed in The New York Times that he had "been buying American stocks."

"There's really no preference from investors to express a risk-on view overseas given that the economic and fundamental foundations are not as strong as they are in the U.S.," Bartolini said.

And though he acknowledged that "weak performance, the constructive relative valuations of non-U.S. equity markets and low levels of positioning ... set up international to be a big contrarian call right now," Bartolini found one big issue with that strategy.

"Unfortunately, that was the same call for the last few years and it has yet to pan out," he said. "I think if investors do want to sort of step into that market ... firms with higher-quality balance sheets that do trade at inexpensive valuations may be worth a flier just because they might have some more fundamental rigor to withstand any degradation in earnings and economic growth.

Disclaimer