2 Risky Investments Going In Opposite Directions – Weekly ETF Fund Flows
Over the last few months, we’ve seen investor sentiment swing from greed to fear and back to greed again…investors have certainly been a bit bi-polar lately. And those emotions have been reflected in the ETF fund flows.
Investors have flooded into risky assets, like small-cap stocks and emerging markets, when greed is in control. When fear grips the market, money comes flooding out of risky assets and flows into safe haven funds that hold things like US Treasures and bonds.
But over the last week, we’ve seen the pendulum of fear and greed begin to swing a little more slowly. As a result, the risky asset versus safe haven asset isn’t the only thing that matters.
In fact, we’ve seen fund flows in two types of risky assets diverge over the last week.
One ETF that saw strong inflows last week is the iShares Russell 2000 (IWM). It had net inflows of $1.3 billion.
IWM tracks an index of 2000 of the smallest US stocks based on market capitalization. These small cap stocks don’t have the same track record and stability of a blue chip stock you’ll find in the Dow Jones Industrial Average or even the large cap stocks in the S&P 500.
Simply put, this makes small cap stocks more volatile and riskier than large cap stocks.
The upside is when the economy and stock market are doing well, then small cap stocks typically outperform large cap stocks. The downside is when things aren’t going well, small cap stocks fall harder than large cap stocks.
The recent inflow of money into small cap stocks is a vote of confidence in the US economy.
Another risky asset that’s on the flip side of the asset flows is the iShares MSCI Emerging Markets (EEM). Last week investors pulled $870 million out of EEM.
EEM holds stocks from emerging markets in places like Eastern Europe, Africa, the Middle East, Latin America, and Asia. These areas typically have the potential for much faster economic growth than developed countries like the US, Japan, and Europe. And that growth can translate into much bigger profits for investors.
But those investments come with an added layer of risk from political and economic instability. Right now the unrest in Ukraine is a perfect example of how politics play an important role in investing in emerging markets.
It’s not surprising to see investors pulling money out of EEM as the situation in Ukraine drags out.
That wraps up this week’s ETF fund flows…
Keep in mind, there’s a lot of information about ETF fund flows. And it can be a very useful tool as long as you know what you’re looking for.
Good Investing,
Corey Williams
Category: ETFs, Market Analysis
