What do investors love and what do they hate? Where are they putting their money?
Analyzing the money inflow/outflow data for ETFs gives us some clues.
In a study of U.S. ETF flows just published by the SPDR ETFs, David B. Mazza, the Head of Research observed:
“Equities drove a disproportionate share of September’s inflows with close to $19.7 billion being added. With $86.6 billion of inflows, equities are now beginning to pull further away from fixed income for the year. The gap widened this month (September) as fixed income ETFs faced net redemptions.” The specialty and commodity categories are the only two who have experienced outflows year to date.”
Although the year to date performance for long-term U.S. Treasuries (NYSEARCA:TLT) is 19.88% and more than double the S&P 500’s return, investors still like stocks more than bonds.
Drilling down even further, the majority of assets are flooding into U.S. large cap stock ETFs (NYSEARCA:VV), which have been outperforming mid (NYSEARCA:MDY) and small cap stock ETFs (NYSEARCA:IJR). In other words, the predictable herd behavior of chasing performance is quite evident.
Contrast this with the investing public’s general disdain for commodities (NYSEARCA:DBC) along with cash equivalents and money market funds (Nasdaq:SWMXX).
In its mid-summer survey, the American Association of Individual Investors (AAII) revealed that retail investors reduced cash in their portfolios to a 14-year low of 15.8%.
Meanwhile, shrewd investors are doing the exact opposite.
Over the past year, Buffett’s Berkshire Hathaway (NYSE:BRK-B) has amassed $55 billion and its year-over-year cash stockpile is up more than 50%.
The fact that Buffett is once again increasing his cash exposure rather than equity exposure is notable, as I discuss in my latest video “Warren Buffett’s Favorite Asset Class (besides stocks).”
No matter how little it’s yielding, cash inside a portfolio offers the investor financial flexibility, a cushion, and stability. It also allows you to be opportunistic by buying assets that go on sale when others are selling. In contrast, the fully invested portfolio is never afforded such luxuries.
The ETF Profit Strategy Newsletter uses sentiment analysis, market history and common sense to keep investors on the right side of the market. Our largest year-to-date winner is a +188% timestamped gain from our Jun. 5 Weekly Picks. All readers get email and text alerts too.
Follow us on Twitter @ ETFguide