All ETF Inflows/Outflows Aren’t The Same

June 10, 2019

Through that lens, and the respective ETFs that make each index, Balchunas found that about 90% of outflows or inflows—in an outsized month such as May—are seen in big, very liquid ETFs that traders love: funds like SPY, QQQ, EEM.

Low-cost ETFs accessing these same market segments—those preferred by retail such as iShares Core, Vanguard ETFs and Schwab—actually continued to see inflows in May. Funds like the iShares Core S&P 500 ETF (IVV), and the iShares Core MSCI EAFE ETF (IEFA)—as well as the Vanguard Total Stock Market ETF (VTI) were all net gainers, among others.

In fact, Balchunas noted, since President Trump took office, retail investors have been consistently adding money to risk asset ETFs, capturing pretty much the market’s entire ride up—about 12% annualized for the S&P 500—because their funds are also dirt cheap, so they’ve paid very little to stay invested.

“It’s time to separate those flows,” Balchunas told “May was a bad month, but it’s only when retail investors get rattled that you can actually talk about dedicated buyers leaving the market.”

“In May, traders bailed, and allocators still allocated, just a little less,” he added. “To me, anytime SPY gives or takes $20 billion is just trader noise. Lack of inflows into IEMG [iShares Core MSCI Emerging Markets ETF] speaks louder to me [about investor sentiment] than outflows from EEM. We get a more accurate narrative this way.”

What Asset Flows ‘Predict’

Looking ahead, the summer promises to be volatile, with global growth concerns lingering, trade wars ongoing, and elections in various European countries coming up in the fall.

So what do May asset flows tell us about what the future holds? Muted appetite in May for safe havens such as gold ETFs, and continued demand for equity ETFs by the retail crowd, combined with expectations that the Federal Reserve may cut interest rates ahead, could bode well for ETF asset flows in June. Traders may come back to the risk assets they dumped in May.

“June could be a big month for flows,” Balchunas said.

Contact Cinthia Murphy at [email protected]

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