Summarizing 2010 ETF Outflows

Tyler Durden's picture

By now it is no secret that US investors have said no mas to mutual funds investing in domestic stocks. Zero Hedge has consistently been demonstrating the outflow (now in its 19th straight week) from domestic funds. Yet some continue to hold hope that this is merely a rebalancing out of "old school" investment vehicles into the synthetic CDO family for the post-Lehman generation that are ETFs. Well, let's take a look at that shall we - the results may surprise you.

According to the latest monthly PowerShares ETF summary report, we find that for the month of August alone, that argument falls flat on its face: "Investors pulled $3.2 billion out of ETFs in August bringing the YTD flows to positive $45.8 billion." Fair enough, but there is still $45.8 billion in ETF inflows YTD one could say? Surely this at least partially offsets the $65 billion in mutual fund outflows?


Below is a composition of all the funds by product type focus that have seen either inflows or outflows year to date.

As is more than obvious from the chart above, the one biggest beneficiary of flows into ETFs was the Fixed Income type of ETF. In other words, instead of putting their money into fixed income focused mutual funds, some investors chose to do so via ETFs. Yet with inflows of well over $200 billion YTD in plain vanilla mutual funds, does that not also immediately refute the thesis that ETFs are now perceived as a better vehicle to invest than plain vanilla funds? Surely if that were the case this number would have been orders of magnitude greater. Perhaps investors are once again not that dumb, realizing all too well, that ETFs are nothing than synthetic vehicles which very much like the CDOs of yore will be the first to get carted out the door feet first during the next major flash crash.

More importantly, however, one can eliminate the impact of the Fixed Income contribution to ETF flows. Just as one can remove the contribution of Commodity and Currency funds, both of which net out to $5 billion. And while continuing to normalize, one should most certainly adjust for the Leveraged funds, which are nothing but a daytrader's product, and which have no utility from a long-term investment perspective due to their huge embedded theta.

So that means there are about $6 billion in ETFs that can be roughly attributed as equity-related. Yet of this $6 billion, there are flows of another $17.5 billion going into ETFs that track global markets (and not domestic). Which makes sense. Because as the line in the chart confirms, flows to pure equity strategies and domestic equity-related ETFs was....-$16.2 billion YTD. That's right: the withdrawal from domestic equity mutual funds, a proxy for the loss of investor confidence in both market structure and the prospects before US stocks is mirrored perfectly in the ETF universe.

So the next time someone tells you that mutual fund flows are simply moving out of funds and into ETFs, fell free to tell them they are wrong.


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Pladizow's picture

With the rise of ETF's the markets are likely to see more volitility.

When you want to sell a mutual fund you have to wait for the close at the end of the day.

When you want to sell your ETF, you click your mouse.

PlausibleDenial's picture

True, but doesn't having the ability to mitigate losses by clicking that mouse have greater utility than being subject to just sitting and watching a continued loss in the standard mutual fund that you wanted or needed to sell?

hedgeless_horseman's picture

Mutual funds were not intended for trading, unless of course you were one of the select customers of Janus Funds.

ebworthen's picture

And they thought there was no moral hazard involved in the bailouts, TARP, TALF, Fannie/Freddie, etc., etc.

I find it humurous to watch the mutual fund managers repeating their hackneyed lines about investor "fear" of the markets and the "need" for them to invest in domestic equities.  It isn't fear you clueless bastards, it's ANGER.

I'd rather lose $20 than make $20 being humiliated on stage at the magic act then robbed of my $20 in the back alley on the way home by Uncle Sam and his boys.

buzlightening's picture

hehehehehehe! Funny analogy ifin you're not the one getting gang banged in the back alley by DONK! dodd/frank finreg!!  That's the real joke to choke on!!  Get as far away from US paper goonzi ASSets as possible!!  You believe these goons are here to assist the people, then you may as well jump into the turning blades of a meat grinder to see how your financial future feels!

hedgeless_horseman's picture

Nice on-point analysis, TD.  I would like to see a similiar  review article correlating this with the pension numbers. What was it?  Something like unfunded pension liabilities increased by $100,000,000,000 in the last reported MONTH, alone.  Leo?  Spit out your ouzo and get to work.

RockyRacoon's picture

It shouldn't be assumed that the outflow is still good money.  When asset destruction is taken into consideration, and funds are spent on daily necessities, when funds are spent on paying down credit card and student debt, and when funds are converted to PMs, the money does not end up "on the sidelines".  But CNBC will spin it that way.

mephisto's picture

Wonderful analysis, many thx. This is how to add a vertical dimension to any discussion of 'sector rotation' turning it into 'circling the drain'.


RobotTrader's picture

Outflows from stocks cannot last forever.

It is amazing that the market has stayed up here despite retail investors selling in droves.

Part of the reason for the strength in stocks today is the outright collapse in gasoline prices the last few months.

It is a huge tax cut for consumers.

That is why they are buying $125 workout outfits.


HarryWanger's picture

Not to mention any iGadget put out by Mr. Jobs.

reading's picture

Don't make the mistake o thinking that just because their stock is going up that anyone is buying any of their shit...remember  that stock went up too, until it didn't...

Same double top on UA as yesterday...but we know you don't trade it anyway, you just post it for fun.

RockyRacoon's picture

It is amazing that the market has stayed up here despite retail investors selling in droves.

"Amazing"?  Not really.  I find it humorous that you are surprised or amazed.  If you understood the mechanics of the phenomenon you would not be in awe.  Posting the most ramped up chart you can find is not research.  Embellishing the comment with pictures of babes only adds to the diversion.  (But I do like the sporty tie-in to the theme of your comment...)

reading's picture

And on those gas prices:


8/30 9/6 9/13 Chg 1 wk chg 1 year

2.68 2.682 2.721 .039 .144

The only areas showing a YOY drop in prices is the left coast of -.064c

In case you need to see it in pictures:

RobotTrader's picture

Prices in my neighborhood have been crushed under $3.00/gal.

I haven't paid that in over 2 years.

reading's picture

As I said, the west coast did see a YOY decrease, however it was the only area.  California's YOY decrease was greater than the west coast in general.  My point is you made a blanket statement about a "collapse" in gas prices is a tax cut to the consumer -- You might see a drop (a collapse is what we saw from 09/08 to 11/08) in gas prices in LA but it is not happening everywhere and therefore your statement is without factual merit.

I know you like pictures so here is the chart link:

Trifecta Man's picture

Keep Americans jobless and they will use up those stock investments for food and energy over time.  I think you need to think a little further out in time.

Dollar Bill Hiccup's picture

Does the outfit come w/ the ball?

VWbug's picture

so if the point is that all retail players have left or are leaving the market quickly, that means all the weak hands are out?

pretty bullish contrary indicator.

TWORIVER's picture

How much money was in short oriented ETF's? Thanks.

RockyRacoon's picture

Is that rhetorical to point up how money is flowing, or is that a request that we do your homework for you?

TWORIVER's picture

Respectfully, both. sometimes no reply is better than a negative one.

RockyRacoon's picture

Ok, in that case I'll fall on the rhetorical aspect.

I just don't think that someone giving you an arbitrary number would be helpful in your decision making.  One's own research is always the best.  Some old axiom comes to mind about due diligence.  Good luck.

TWORIVER's picture

True, I see a category for Leveraged/Inverse, but not for Leveraged/Long. Whats you take.

RockyRacoon's picture

Someone else will have to run with that ball.  I do not short anything nor use ETFs, nor do I trade in forex or the paper metal markets.    I'm what you might call a purist.  Leverage is what got us here.

frugalman's picture

I own 1,200 shares of SH (S&P 500 short the index).  I wonder what category this ETF falls in among those listed..

RockyRacoon's picture

If you don't know, should you be there?  Just askin'.

TWORIVER's picture

I assume, yikes, that it falls under leveraged/inverse. There is no category for leveraged/long.

wiskeyrunner's picture

Make no diffrence wehn you have the magic index futures. Gap them open Sunday night get them up till Monday morning cash open.....Presto! the index is up with no money. then just let it flat line for the rest of the week, SPY has been in a 10 point range for the past three days.

Ploutos's picture

What of the 55 Billion in stock buybacks by the S&P500 companies in the first quarter of 2010 and the estimated 60 Billion in the second quarter.  Might that add a little upside to the market ?

Robslob's picture

Just because they announce a buyback doesn't mean they have to actually DO the buyback right...

Ploutos's picture

55 Billion was completed in the first quarter, not announced

not sure on the issuance, can't find that data


prophet's picture

Fine Bitchez


Herry12's picture

I found lots of interesting information here. I love zerohedge.
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