Small Caps Get Dumped – Weekly ETF Fund Flows
Last week, ETF inflows outpaced outflows by a wide margin. ETFs that hold US stocks, emerging market stocks, and corporate bonds all enjoyed strong net inflows.
Fund flows are a valuable indicator of what traders are thinking. It takes a lot of buying or selling to drive millions or even billions of dollars into or out of individual ETFs.
Fund flows are something traders use to find trends and gauge investor sentiment. And it can help you pinpoint which ETFs could be next to make a big move higher or lower.
The popular SPDR S&P 500 (SPY) was the top asset gaining ETF. The $7.5 billion in net inflows was a sharp reversal from the large outflow the previous week.
It’s not unusual to see large inflows and outflows in SPY. After all, it’s the largest ETF by assets. But the volatility in asset flows is a bit unusual.
One thing’s for sure, some of the big money managers that use SPY as a proxy for US stocks have been putting money into and pulling money out of it quicker than normal.
This speaks to the large amount of noise in the market. The geopolitical conflicts, as well as the mixed economic data, have money managers on edge. And they are willing to move large amounts of money in order to avoid being caught on the wrong side of a trade.
Other ETFs that enjoyed strong inflows last week include Consumer Staples Select SPDR (XLP), iShares MSCI Emerging Markets (EEM), and iShares Core US Aggregate Bond (AGG).
At the same time, investors pulled $1.0 billion out of iShares Russell 2000 (IWM). The large outflow from IWM is another strike against small cap stocks.
So far this year, the small cap ETF is underperforming the large cap SPY by 8%. The poor performance of small cap stocks this year is clearly leading to some big outflows for IWM.
In my opinion, the outflows are likely from investors that chase performance. Needless to say, far too many investors sell an ETF if its recent performance isn’t living up to expectations.
One thing that’s weighing on small cap stocks is the weakness in housing.
As I’ve pointed out before, housing accounts for 19% of small cap stock earnings while only accounting for 10% of large-cap earnings. So the weakness in housing has a larger impact on small cap stocks than large cap stocks.
Here’s the thing…
The ETF money flows have been very volatile lately. We’re clearly seeing nervousness from big money managers that can drive the type of volume we’ve seen in recent weeks.
What’s more, investors are throwing in the towel on their small cap investments as they continue to underperform relative to large caps.
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
