Emerging Market ETFs Leading 3rd Quarter Inflows
It’s been a nerve-wracking start to the third quarter.
In one corner, we have the bears… they’re betting on uncertainty, ongoing violence, and a slowdown in global economic growth. And you can see this in the recent price action of European, energy, and industrial stocks.
In the other corner, we have the bulls…they believe growth is coming back. And you can see this is the recent price action of emerging market, technology, and biotech stocks.
In other words… there’s vast divide in how the bulls and bears view the markets.
Let’s take a look at the ETF fund flows so far in the third to see where the money is going…
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 ETF with the largest net inflow so far in the third quarter is the iShares MSCI Emerging Markets (EEM). Investors have steadily pumped money into EEM over the past several weeks. As a result, it has gained $2.6 billion in assets.
One thing helping EEM is its exposure to Chinese stocks.
Investor sentiment toward Chinese stocks has improved markedly over the past few months. In fact, many view the recent price action as the early stages of a new bull market in Chinese stocks.
Needless to say, a bull market is the world’s largest emerging economy should fuel a bull market in ETFs that hold emerging market stocks.
At the other end of the ETF money flows spectrum, you’ll find iShares Russell 2000 (IWM) and iShares MSCI EMU (EZU). So far during the third quarter, IWM and EZU have both lost more than $2 billion.
Investors are shunning US small cap stocks as they continue to underperform compared to large cap stocks.
So far this year, the small cap ETF is underperforming the S&P 500 by 8%. The poor performance of small cap stocks this year is clearly leading to some big outflows for IWM.
Investor sentiment toward European stocks has turned bearish as well. And for good reason… the conflict in Ukraine and the sanctions against Russia will have a negative impact on European economic growth.
That’s bad news for the European economy that has struggled to rebound following the 2008 financial crisis and the sovereign debt crisis that plagued the region in the years that followed.
If European economic growth fades right now, it could easily slip back into recession and that’s a big problem for European stocks.
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
