ETF Flows Can Reveal Market Sentiment

September 03, 2014

If you want to ferret out signals from ETF flows, you have to dig deep into the data. Here's how to do it.

Dave Nadig's recent blog on the August ETF fund flows—Investors Fleeing To This Treasury ETF—provides a great overview of where ETF investors moved in aggregate in August.

The teaser for Nadig's article painted a dark picture: "If you're reading tea leaves in ETF flows, this one's ominous."

As Dave pointed out, three of the top 10 ETFs for inflows in August were the kind investors only buy when they are scared: the iShares 7-10 Year Treasury ETF (IEF | A-58), iShares 1-3 Year Treasury ETF (SHY | A-97) and iShares 3-7 Year Treasury Bond ETF (IEI | A-72).

Is the market panicking?

It's the kind of signal I see a lot of investors trying to draw out of ETF fund flows. Unfortunately, to truly separate the signal from the noise, you have to go a level deeper.

Investors Or Investor?

Let's take the most popular ETF last month: the aforementioned IEF, which pulled in $1.48 billion in new money in August. If investors as a group were flocking to this ETF, it would be cause for concern.

But one of the great things about the free ETF fund flows tool on is that you can pull up a chart of any ETF over any time period and look at the flows both in aggregate and on a day-by-day basis.

To do that, just enter the ETF's ticker into the search bar, set your dates and click "submit." Then click the blue arrow next to each fund that says "Details" and you pop up a chart that shows each day's flows.

Here's the chart for IEF in August:

IEF Fund Flows

It's easy to see what sticks out: essentially all of the flows occurred on a single day—Aug. 18. To be specific, $1.24 billion out of $1.48 billion in inflows came on that day.

You see a similar pattern for the other two Treasury ETFs, with 95 percent of their inflows occurring on Aug. 1.

Here are the flows for SHY:


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