One great thing about the exchange-traded fund (ETF) marketplace is that, by looking at flows, you can see where investors are putting their money. It's an unscientific sample, of course - ETF investors represent just a fraction of the total market, and they don't invest in ETFs alone - but it offers an interesting glimpse on where these investors think the hot returns are coming from.
Consider the Select Sector SPDRs, the fast-growing sector ETF family from State Street Global Advisors. The sector SPDRs include nine funds with a total of $17.1 billion in assets. The ETFs divide the S&P 500 into nine basic sectors.
The SPDRs are great funds for a variety of reasons, but what's really great about them from a "numbers" perspective is that a lot of investors use them - exclusively - to make sector bets on U.S. stocks. As a result, within a margin of error, you can look at the fund flows in the Select Sector SPDRs and see where a certain set of investors are placing their money.
The chart below shows the asset growth and growth percentage for the nine Select Sector SPDRs in 2006:
|
Ticker |
Sector |
Asset Growth |
Asset Growth % |
|
XLP |
Consumer Staples |
$710 million |
89.86% |
|
XLU |
Utilities |
$1.3 billion |
78.20% |
|
XLY |
Consumer Discretionary |
$255 million |
64.38% |
|
XLK |
Technology |
$468 million |
30.41% |
|
XLI |
Industrials |
$182 million |
20.53% |
|
XLF |
Financials |
$382 million |
20.44% |
|
XLE |
Energy |
$473 million |
14.40% |
|
XLB |
Materials |
$71 million |
7.49% |
|
XLV |
Healthcare |
$55 million |
3.05% |
Clearly, investors have a lot of faith in the consumer - perhaps more faith than is warranted - and not much faith in the healthcare arena. (Anyone want to take the reverse bet on that for 2006? Most market pundits would say that's looking pretty smart right now.)
Of course, straight asset counts are impacted by market returns, so another way to look at fund flows is through the lens of net new share issuance. That eliminates the impact of markets rising or falling, and instead looks at net new demand for shares by investors.
Remarkably, the story looks very similar: investors loved consumer stocks and Utilities, and shunned Materials and Healthcare.
|
Ticker |
Sector |
New Shares |
New Share Growth% |
|
XLP |
Consumer Staples |
23.3 million |
69.29% |
|
XLU |
Utilities |
28.0 million |
52.33% |
|
XLY |
Consumer Discretionary |
4.9 million |
39.91% |
|
XLK |
Technology |
12.7 million |
17.18% |
|
XLI |
Industrials |
2.3 million |
8.17% |
|
XLF |
Financials |
2.3 million |
3.82% |
|
XLE |
Energy |
-1.2 million |
-1.83% |
|
XLV |
Healthcare |
-1.3 million |
-2.39% |
|
XLB |
Materials |
-2.0 million |
-6.50% |
Many investors also use the Select Sector SPDRs to hedge the market, or to short sectors they expect to fall. Indeed, there's tremendous short interest in the funds, with over 480 million shares sold short across the family.
Interestingly, the two sectors that saw that the biggest jump in short interest in December are also the two sectors that saw the largest asset growth throughout 2006: Consumer Staples and Utilities. Does that meant investors are starting to sour on the golden sectors? Possibly…
|
Ticker |
Sector |
Short Shares Outstanding |
% Change - December |
|
XLP |
Consumer Staples |
57.1 million |
31.41% |
|
XLU |
Utilities |
81.5 million |
25.60% |
|
XLE |
Energy |
64.1 million |
12.97% |
|
XLB |
Materials |
29.4 million |
5.96% |
|
XLV |
Healthcare |
55.0 million |
4.16% |
|
XLI |
Industrials |
30.5 million |
1.43% |
|
XLK |
Technology |
86.3 million |
-7.31% |
|
XLY |
Consumer Discretionary |
17.0 million |
-18.40% |
|
XLF |
Financials |
61.3 million |
-21.94% |
Someone clearly wanted out of shorting the Financials sector.
