ETF Fund flows - not where you might expect

by Wayne Ferbert on May 8th, 2012

Yesterday, we wrote about the net flows Year-To-Date in to the top 50 largest US-based ETFs by AUM . The date shows significant fixed income flows – particularly to the high yield category. The data is from Morningstar and uses Morningstar ETF categories.

But there was some other data of interest. The top 3 categories with the largest flows as a percentage of AUM (ie, growth %) were:
We talked about the reasons we suspect that funds flowed to fixed income ETFs yesterday – you can read it here.

Why there were such strong flows to Real Estate surprised me? I wonder whether it was a ‘safe play’ by some – looking for hard asset exposure. But it makes me wonder. I think later in the week we’ll examine the flows in more detail to see what these real estate ETFs are holding.

The single largest net flow in dollar terms among the top 50 ETFs was the diversified emerging markets space – with a whopping $9.1 billion in net inflows. That was 10% growth since the beginning of the year. That is impressive new flows – but the category is probably viewed as depressed given the growing European economic malaise.

It surprised me to see the only S&P 500 fund actually see a net outflow: the SPY (largest ETF in the group) saw a net outflow of $3.3 billion or 3.3% of AUM. Given the great run the fund has had, this surprised me. It would be interesting to see the flows by week over the quarter – and see if the recent market stall has driven some of the outflows.

The three categories with the largest outflows as a percentage of the total AUM were:
Utilities really suffered in the quarter so this was not new. Also, bull markets tend to make consumer defensive stocks suffer. But we see some defensive rotation in the move from equity to fixed income. So, it surprised us to see the consumer defensive lose out on flows – despite a solid quarter.

The net/net of these inflow number is that money moves based on markets and investor sentiment. Often, these moves are lagging indicators – which can be scary. Sometimes, they are leading indicators. The ability to predict which one you see in the data is the ability to place winning trades.

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