Don’t Jump On This Bandwagon – Weekly ETF Fund Flows
Stocks felt the impact of two new shocks to the system last week… A passenger jet was shot down in Ukraine and Israel launched a ground assault in Gaza.
Needless to say, these two events mark an escalation in the level of violence in these areas. It also means the level of tension between Russia and the West, as well as the Middle East, is reaching a boiling point.
The ETF fund flows indicate these geopolitical obstacles were weighing on investors last week.
As you know, 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.
Not surprisingly, the largest inflows were seen in ETFs that hold US Treasuries. These safe haven investments tend to perform well in times of uncertainty and heightened geopolitical risk.
The iShares 7-10 Year Treasury Bond (IEF) had the largest inflow of any US listed ETF. It had more than $1.5 billion in net inflows last week.
Any time ETFs that hold US Treasuries are at the top of the list for inflows, it’s a good bet that something is causing investors to be fearful. And it’s all the more troublesome when those fears are being caused by news headlines.
Unfortunately, there’s little investors can do to mitigate the risk these headline driven fears pose to stocks other than selling stocks and buying safe haven investments like US Treasuries.
What’s worse is selling stocks during times of heightened geopolitical risk is the wrong move. More often than not, these events end just as suddenly as they began. And investors that sold stocks miss out on the snap-back rally.
That’s likely to be bad news for the investors that dumped their ETFs that hold US stocks last week. And we did see heavy selling among many of the ETFs that hold US stocks.
The ETFs hardest hit by last week’s selling were SPDR S&P 500 (SPY), iShares Russell 2000 (IWM), and iShares Core S&P Mid-Cap (IJH). SPY lost $2.2 billion while both IWM and IJH lost around $1.4 billion.
As you can see, these outflows hit the entire spectrum of stocks. Investors dumped large-, mid-, and small-cap stocks alike.
However, the weakest performance for the week goes to the riskier small cap stock. IWM lost nearly 2% during the week while the IJH lost 1% and SPY finished the week unchanged.
Here’s the thing…
Heightened geopolitical risks clearly caused some selling among stock ETFs and buying of safe haven Treasury ETFs.
But don’t be too quick to jump on this bandwagon… I’m more concerned about missing out on the snap-back rally in stock ETFs when these risks subside.
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
