ETF Investors Piling Into Equity ETFs

Despite growing calls for a correction, equity funds—particularly U.S. stocks—are popular.

Investors poured nearly $4 billion into U.S.-listed ETFs in the past week, the bulk of which landed in risk-assets; namely, U.S. and international equity funds. The flows, particularly into U.S equity ETFs, came despite what seems to be a growing call for a significant market correction.

Pundits like Marc Faber, for example, are reportedly talking of an asset bubble that’s not only about to burst, but about to unleash a full-out bear market in stocks. Yale Prof. Robert Shiller has been warning of highly overvalued U.S. stocks for months now.

Consider that since it bottomed out in March 2009, the S&P 500 has now rallied nearly 200 percent to near a new record level of 2,000 in recent days—a rally some argue is fueled more by easy money policies than actual fundamental strength.

Just this morning, the National Association of Business Economics reported that a survey of economists slashed U.S. GDP growth projections to 1.6 percent for 2014, from a previous 2.5 percent, according to the Associated Press. But the report also said that they are generally “optimistic” about the economy.

Plenty Buying Into Rally Nonetheless

For now, it seems there are plenty of investors who believe in this ongoing rally in stocks, pouring more than $1.66 billion in net new assets into U.S. equity ETFs alone in the past week, helping push total U.S.-listed ETF assets to $1.862 trillion.

Funds linked to broad-based large-cap U.S. equities indexes such as the S&P 500 and the Nasdaq 100 were particularly popular. The SPDR S&P 500 (SPY | A-98) attracted nearly $3 billion in net inflows, while the competing iShares Core S&P 500 (IVV | A-98) raked in $425 million in the past five days ended Thursday, July 10, according to our data.

The PowerShares QQQ (QQQ | A-42) gathered $1.13 billion in the week—a 2.5 percent AUM jump for the biggest Nasdaq-linked fund, which now boasts $45.2 billion in total assets.

Demand For Broad Emerging Market Exposure

Similarly popular were emerging-market-linked ETFs, which have been coming back into vogue in recent months. The two behemoths in the segment—the iShares MSCI Emerging Market ETF (EEM | B-100) and the Vanguard FTSE Emerging Market ETF (VWO | C-90)—were both found among the week’s 10 most popular ETFs, raking in a net of $395 million and $307 million, respectively.

US Small-Cap Stocks On Losing End

What investors were not particularly keen on was exposure to the U.S. small-cap segment, as represented by the Russell 2000.

Perhaps investor preference for U.S. large-cap over small-cap exposure betrays uncertainty about the true health of the U.S. economy. Small-caps are often thought of as more reflective of domestic themes. In the past 12 months, the Russell 2000 has lagged the S&P 500 by nearly 6 percentage points, as the chart below comparing a Russell 2000 ETF and an S&P 500 ETF shows.

Chart courtesy of StockCharts.com

The iShares Russell 2000 ETF (IWM | A-81) bled nearly 5 percent of its total assets in the past five-day period as investors yanked more than $1.33 billion from the fund. IWM was, in fact, the least popular ETF in the past week.

Top 10 Creations (All ETFs)

Top 10 Redemptions (All ETFs)

ETF Weekly Flows By Asset Class

Top 10 Volume Surprises, Funds >$50 mm AUM

Top 10 Weekly Performers, Excluding Leverage/Inverse Funds and <1,000 Shares Traded

Bottom 10 Weekly Performers, Excluding Leverage/Inverse Funds and <1,000 Shares Traded

Top 10 YTD Performers

Bottom 10 YTD Performers

Disclaimer: All data as of 6 a.m. Eastern time the date the article is published. Data is believed to be accurate; however, transient market data is often subject to subsequent revision and correction by the exchanges.