Small Cap ETF Fund Flows Reverse – Weekly ETF Fund Flows

| May 19, 2014 | 0 Comments

fund flowsInvestors shook off their fears and put money to work in US stock ETFs last week. In fact, inflows into ETFs holding US stocks outpaced outflows by a wide margin.

These 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.

In a surprising turn of events, the iShares Russell 2000 (IWM) led all ETFs with net inflows of $1.4 billion last week. This ETF holds US small cap stocks.

IWM finished the week down nearly 9% from the 52-week high it set back in March. The small cap segment has dramatically underperformed relative to large cap stocks that are only down marginally from their recent highs.

The flow of money into the relatively weak IWM is an indication that investors are still willing to take on risk in hopes of bigger rewards.

After all, small cap stocks are prone to more volatility than large cap stocks. More often than not, small cap stocks fall further in a correction and soar higher in an upturn than large cap stocks.

The investors that are putting money into IWM right now are clearly hoping the drop in small cap stocks is near an end. And a rebound will send IWM back to recent highs or even to new highs.

In other words, taking on the risk of small cap stocks after a 9% drop could generate a solid return in the near future as the volatile small cap ETF regains its bullish momentum.

What’s more, the SPDR S&P 500 (SPY) ended its streak of weekly outflows. After losing $7.7 billion over the previous four weeks, SPY had net inflows of $500 million last week.

In another bullish signal from the ETF flows, there were no ETFs with unusually large outflows last week. The biggest losers were the iShares S&P 500 Growth (IVW) with $283 million in outflows and the Financial Select Sector SPDR (XLF) with $198 million in outflows.

The combined $481 million outflow isn’t chump change but it’s a drop in the bucket compared to the $1.7 trillion in US listed ETFs.

At the very least, last week’s fund flows were an indication investors are holding off on selling ETFs that hold US stocks. And they’re even beginning to add risk in hopes of generating big returns from a rebound in the oversold small cap segment.

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

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Category: ETFs, Market Analysis

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets three times a week. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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