By Chris Dieterich
NEW YORK--Investors pulled a record amount of money out of
exchange-traded funds in August, but given the growth of the ETF
industry, a record isn't what it used to be.
On its face, August was the worst month ever for outflows from
U.S.-listed ETFs, according to BlackRock Inc. (BLK). Some $17.5
billion flowed out of all U.S. ETFs, topping the previous record
for $17.1 billion, set in January 2010.
But when compared to overall assets in ETFs, the August exodus,
while large, didn't even come close to a record. With $1.5 trillion
held in ETFs, the money headed out the door last month accounted
for 1.1% of ETF assets last month. Withdrawals in January 2010
equaled 2.2% of the $800 billion in total ETF assets at the
time.
And on a longer time frame, last month was nowhere near the
biggest recorded monthly outflow, according to BlackRock. Back in
June 1994, the outflow of $162 million represented 29% of the
nascent industry's total assets.
"Record flows can be misleading in a sense because there is not
a huge history of data to support the industry yet," said Victor
Lin, a director in trading strategy at Credit Suisse.
In addition, much of the investor selling last month came in the
SPDR S&P 500 (SPY), the market's largest ETF, and one which is
prone to big short-term swings in assets.
Still, the selling reflected worries across global stock and
bond markets about the impact of the Federal Reserve dialing back
its easing efforts. Then late in the month, nerves were further
frayed by the possibility of U.S. military action against
Syria.
Daniel Gamba, head of BlackRock's institutional iShares business
for the Americas, says that the recent volatility in flows should
be taken in context of what has generally been a steady stream of
money heading into ETFs this year.
After taking funds each month trough May, a rocky June in the
markets saw investors pull $11 billion out of U.S. ETFs, they
reversed course during July, pumping in $40 billion.
"Clearly August's outflows sounds high, but when you look at in
context following July's inflows, it's only about a third," Mr.
Gamba said.
August's exit showed "very tactical" behavior on the part of
investors in both stocks and bonds, Mr. Gamba said, meaning that
rather than wholesale selling, there were specific winners and
losers in different pockets of stocks and bonds.
For instance, the iShares Core S&P Mid-Cap Stock (IJH) fund
took in more than $2 billion in the most recent month, the most off
all ETFs.
To Dave Nadig, director of research at IndexUniverse, flows in
midcap stocks showed that investors staying in U.S stocks "were
reallocating away from stodgy, old companies" into smaller names
that hadn't risen as quickly.
Another quirk of the data is that the bulk of August's outflows
come from a single ETF goliath: The $136 billion SPY also saw the
greatest amount of money leech away last month, losing $14 billion,
or 80% of the total U.S. outflow. The S&P ETF is heavily used
by short-term traders, both to make outright bets on the market or
to use as a hedge against other positions. As a result, cash flows
with the S&P 500 ETF "can fluctuate significantly from month to
month," said Mr. Lin.
The SPY took in $13.8 billion in July, nearly as much as leeched
out in August. And smaller ETFs that track the S&P 500--the
Vanguard S&P 500 (VOO) and the iShares Core S&P 500
(IVV)--actually took in modest flows in August.
Write to Chris Dieterich at
christopher.dieterich@dowjones.com;
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