Daily ETF Watch: ‘Risk-On’ Flows Surging

Investors are clearly starting to take on riskier assets, according to ConvergEx’s Nicholas Colas.

Investors are clearly starting to take on riskier assets, according to ConvergEx’s Nicholas Colas.

ETF filings and launches are light today, so we thought it might be a propitious time to have a closer look at ETF flows this month and so far this year to gauge investor sentiment at a time when markets are fretting about events in Ukraine and remain concerned about the outlook for economic growth.

Year-to-date, flows are positive mostly because of safe-haven moves into bonds. But flows into equities have been quite strong this month and are, by now, nearly positive on the year. Investors, it seems, are looking past geopolitical risks in Ukraine and past concerns that the stock market is becoming frothy and are taking on risk in the form of equities.

Specifically, over the past month, money flows into U.S.-listed equities-focused exchange-traded funds have finally caught steam. New capital is clearly flowing to higher-risk/higher-return asset classes after bond inflows dominated in the first six weeks of the year, according to Nicholas Colas, chief market strategist at ConvergEx Group, a global brokerage company based in New York.

“Consider that in the last four weeks, ETF net flows are positive to the tune of $21.2 billion,” Colas said in his daily research note. “All of that—and then some—went into stock funds. China may be slowing, and the Ukraine is a global wild card, but investors are putting money to work in risk assets right now.”

The tide began to turn about a month ago in mid-February, as powerful safe-haven flows into bond ETFs began to give way to inflows into equities.

Total inflows into ETFs totaled more than $19 billion last month, most of that inflow going into bonds. But equities also managed to pull in assets after the tide had turned. In fact, last month, equities as an asset class lost $3.5 billion in outflows, including $1.7 billion out of U.S. stocks.

Also, $11.7 billion in fresh assets flowed into U.S. equity ETFs in the first two weeks of March.

Filing

ETF Securities, the London-based purveyor of physically backed commodities ETFs, is looking to expand its offerings to include active and index-based strategies registered under the Investment Company Act of 1940.

Expansion into so-called ’40 Act funds among purveyors of commodities funds is becoming something of a trend in the ETF space.

The firm has filed regulatory paperwork seeking permission to market self-indexed funds spanning the equity and fixed-income space, according to a regulatory filing. Self-indexing is a trend popularized by the likes of WisdomTree, enabling firms to bring their funds to market more efficiently without the use of a third-party indexer.

In addition, ETF Securities also filed for permission to launch active funds—an area of increasing focus of other traditional index-based ETF issuers such as Vanguard and mutual fund providers.