State Street's summer inflows favor cheap stocks and a gold hedge

The top three SPDR exchange-traded funds by inflows this year and over the past four weeks buy two assets: the S&P 500 and gold. The cheap side is the State Street SPDR Portfolio S&P 500 ETF (SPYM), which has taken in $57 billion on a 0.02% expense ratio; the defensive side is SPDR Gold Shares (GLD) and its smaller counterpart GLDM, up 13.6% in the four weeks after spot bullion touched $4,651 an ounce in Asian hours on Aug. 25, its highest level in more than three months. ETF Trends notes the gold bid is running on fiscal concerns and geopolitical uncertainty, and it ran into a wall on Aug. 28 when Fed Chair Kevin Warsh used Jackson Hole to restate the inflation fight. Short-end yields and the dollar rose, spot gold fell more than 3% to about $4,456 an ounce, and the year-ago price near $3,400 is a reminder of how far it has come.

The larger SPY has drawn about $11 billion this year, $7.68 billion of it in the week ending Aug. 21 as traders bought the dip—trading capital rather than accumulation, while SPYM remains the parking spot for long-term money. That the same top-three list holds bullion and large-cap beta side by side suggests the hedge was not an afterthought, and the fact that GLD and GLDM are up only 6.6% year-to-date means the gold position is being built now rather than carried from January.

Cheap beta, in these flows, no longer reads as a simple risk-on pulse. A 0.02% large-cap fund paired with a gold hedge up 13.6% in a month is confidence in stocks and almost none in the environment around them; the four-week gold gain and the one-week dip-buying in SPY are the same positioning in two instruments. As this publication has argued, the fee barbell is widening: be free or be worth the fee. These investors are both, paying almost nothing for the index and market price for a hedge that does not depend on the next policy speech. The flows point to the ultra-low-cost index core becoming a utility and the real fee growth moving to the overlays investors bolt onto it.