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All ETF Inflows/Outflows Aren’t The Same |

All ETF Inflows/Outflows Aren’t The Same

June 10, 2019

The month of May brought near-record asset outflows from equity ETFs totaling about $16 billion. This massive exodus—the biggest single-month outflow since at least early 2014—suggests investors are panicked, trimming their exposure to risk assets at an impressive rate (read: Largest Monthly ETF Outflow Of 2019 In May).

Asset flows are, after all, a good indicator of investor sentiment, even if a laggard one.

Big funds landed on the chopping block in May: the SPDR S&P 500 ETF (SPY) bled $12.5 billion; the Invesco QQQ Trust (QQQ) lost $2.3 billion; the iShares MSCI Emerging Markets ETF (EEM) shed $2 billion; the iShares iBoxx USD High Yield Corporate Bond ETF (HYG) saw outflows of $1.6 billion. The list detailed on our Monthly ETF Flows goes on.

Investor Sentiment? What Investor?

What do these flows actually tell us about how investors feel?

The challenge here is accurately interpreting what this sentiment really is, because there’s more than one type of “investor” in the ETF market due to the nature of the wrapper itself.

The common narrative is that a month like May suggests things are bad because retail investors—advisors, asset allocators, robos and do-it-yourselfers—are bailing out of the equity market. They are panicked.

But ETFs are used by retail investors as buy-and-hold asset allocation tools just as much as they are used by “professional” investors such as institutions and day traders for other purposes, including hedging, proxy for futures, placeholders and shorting.

This investor-type distinction matters for anyone trying to assign meaning to asset flows moves—and to anyone brave enough—or crazy enough—to make trading and allocation decisions based on flows.

Bloomberg Intelligence’s Head of ETFs Eric Balchunas, tired of the prevailing narrative that “every time SPY sees outflows, ‘dumb money’ is behind it,” did some work separating investor type within asset flows. (You can check it out here.)

What he found is truly interesting: Traders and hot money—not retail—bailed on ETFs in May.

It’s Never Been About The ‘Dumb Money’

Hot money—traders—has been coming in and out of the market in massive numbers any given month since President Trump took office (and probably even longer). Not retail investors, whose assets have been sticky through all the ups and downs in recent months.

What that means is that $12.5 billion in assets out of the $255 billion SPDR S&P 500 ETF Trust (SPY) in one month had little to do with how retail investors feel about the market, and everything to do with traders being reactive to daily news, and getting out quickly at any sign of trouble, as they typically do.

No Exact Science, But Good Conversation Starter

At, we offer aggregate numbers for asset flows, because you can’t tell in real time who’s buying what.

The way Balchunas addresses that problem was by creating two indexes comprising various ETFs, one representing the trader/professional crowd, the other retail investors. One includes ETFs that offer ample liquidity—the currency of the trader realm. The other includes low-cost ETFs, since the price tag is what retail cares about. These indexes are proxies at best.

To visualize this difference, see the chart below, courtesy of Bloomberg, showing 12-month asset flows based by investor type:


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