ETF Flows Surged Last Month as Mutual Funds Lose Share

Exchange-traded fund flows again outpaced those going into mutual funds in May, a month that also included active ETFs garnering disproportionate inflows and investors putting money into growth funds and moving away from the value category. 

Investors poured $33 billion into U.S.-traded ETFs last month, according to researcher Morningstar Inc., up from $31.7 in April. At the same time, investors pulled $53 billion out of mutual funds, excluding money market funds. Through the end of May, ETFs had brought in $142 billion, compared with $143 billion flowing out of mutual funds, again excluding money markets.  

“The transition from open-ended funds to ETFs has been a long-term trend,” Morningstar research analyst Ryan Jackson said in an interview. 

Actively managed ETFs continued their surge in May, taking in $8.4 billion, up 45% from $5.8 billion in April. The number was little changed from May 2022. Flows into active funds made up about a quarter of all May ETF inflows, despite the category comprising about 5% of total exchange-traded fund assets. 

Pronounced Shift in Sector ETFs

Sector ETFs saw outflows of $3.3 billion in May as investors rotated out of more defensive sectors and into more growth-oriented ones. “There was a pronounced shift from cheaper sectors, like energy and utilities to tech, consumer cyclical and communications,” Jackson said. 

Sector ETF flows bore out this trade, with the defensive Consumer Staples Select Sector SPDR Fund (XLP) experiencing $202 million in outflows in May, while the Consumer Discretionary Select Sector SPDR Fund (XLY) had $372 billion in outflows. “2022 had been value’s crowning year, value trounced growth,” but that “the semiconductor craze renewed appreciation” for growth. 

While June isn’t finished, the effect of potential future rate hikes may alter this move to cyclical sectors from defensive ones. Markets have fluctuated since the Fed characterized its most recent meeting’s results as a “pause” in rate hikes rather than an end.  

XLY’s inflows accelerated, with $462 million in inflows, as did the heavily growth-oriented Technology Select Sector SPDR Fund (XLK), which had over $1.2 billion in inflows, up from $85.5 million last month. However, XLP has had $48 million in inflows so far, and the defense Utilities Select Sector SPDR ETF (XLU) also went from outflows to inflows this month.  

Contact Gabe Alpert at [email protected]