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ETF Fund Flows Are Not Where You Might Expect


An analysis of fund flows uncover some leading indicators.

Yesterday, my firm Buy & Hedge wrote about the net flows year-to-date in to the top 50 largest US-based ETFs by AUM . The date shows significant fixed income flows, particularly to the high-yield category. The data is from Morningstar and uses Morningstar ETF categories.

But there was some other data of interest. The top-three categories with the largest flows as a percentage of AUM (i.e., growth %) were:

We talked about the reasons we suspect that funds flowed to fixed income ETFs yesterday in ETF Inflows Favor Fixed Income Over Equity.

The strong flows to real estate surprised me; I wonder whether it was a "safe play" by some who are looking for hard asset exposure. I think a closer examination is warranted.

The single largest net flow in dollar terms among the top 50 ETFs was the diversified emerging markets space with a whopping $9.1 billion in net inflows. That was 10% growth since the beginning of the year. That's impressive, but the category is probably viewed as depressed given the growing European economic malaise.

Given the great run the fund has had, it surprised me that the only S&P 500 fund to actually see a net outflow was the SPY (largest ETF in the group), which saw a net outflow of $3.3 billion, or 3.3% of AUM. It would be interesting to see the flows by week over the quarter and see if the recent market stall has driven some of the outflows.

The three categories with the largest outflows as a percentage of the total AUM were:

Utilities really suffered in the quarter, so this was not new. As well, bull markets tend to make consumer defensive stocks suffer. But we see some defensive rotation in the move from equity to fixed income, so it surprised us to see the consumer defensive lose out on flows despite a solid quarter.

The net/net of these inflow number is that money moves based on markets and investor sentiment. Often, these moves are lagging indicators, which can be scary. Sometimes they are leading indicators. The ability to predict which one you see in the data is the ability to place winning trades.

Editor's Note: For more from Wayne Ferbert, go to Buy & Hedge ETF Strategies.
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No positions in stocks mentioned.
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