The Follies Of ETF Flows: Part 1

August 13, 2013


For example, based on three different data vendors—BARL, the Morgan Stanly Crude Oil ETN—had either 30,000 shares outstanding, 400,000 shares outstanding or 72 million shares outstanding in July. (Our bet’s on the low number, this time around.)

Even if you’re getting consistent numbers, depending on where those numbers are sourced, the actual change in share counts (and thus, the basis for any flows analysis) can be lagged by a day, a few days or even longer.

Most data vendors get their share count numbers from the National Securities Clearing Corporation feeds, which, theoretically, should be accurate. However, they’re generally referencing creation and redemption activity from at least the previous day.

So if the NSCC share count this morning is 100,000, and was 50,000 yesterday, that likely doesn’t mean that 50,000 new shares were created last night in the settlement process. That 50,000 in flows likely resulted from creation activity the day before. It just took a day to work through the system and come out the other side as data.

Of course, it’s not that simple. Sometimes that data is a day or two later. And sometimes a data vendor is getting a direct feed from the issuer of an ETF or the issuer’s custodian; in which case, for those ETFs, the share count might actually be current and accurate.

And as a consumer of this data, you have essentially no way of knowing, when looking at all ETF data for a given day, which funds are lagged by how much, and which data might simply be bad. For these reasons, in our analysis we try to focus on longer-term trends—flows over a week, a month or a quarter—and take daily flows with an enormous grain of salt.

Further, we flag any big movements in shares outstanding and call the issuer to confirm before we publish anything outrageous. That happens a lot more often than you might imagine, and about half the time, it’s an error.

In part 2 of this series tomorrow, I’ll look at the second major issue with ETF flows data—interpretation.

At the time this article was written, the author held no positions in the securities mentioned. Contact [email protected].


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