As Volatility Picks Up, Here's Where Investors Are Putting Their Money

Money is coming out of very large, passive ETFs and going into markets that are much smaller in size. This creates some dramatic moves currently underway.

For example, the tech sector is 28% of the S&P 500 while the energy sector is a mere 3.2% so you can imagine the impact when $1B comes out of the S&P 500 and goes into a much smaller sector fund like energy. As of today, S&P 500 Technology is DOWN 9.62% YTD while S&P 500 Energy is up 15.04%.

Looking at flows, international funds have seen a 1.1% assets under management (AUM) increase while domestic ETFs have seen a 0.1% increase. Domestic bond funds have lost 0.5% of AUM while international have seen their AUM grow 0.4%.

Of the net $14.1B of US ETF inflows YTD, 9% have gone into commodities.

Source: Bloomberg, Financial Sense Wealth Management

Looking at the top 10 and bottom ETFs for flows, the winners are skewed towards value and the losers are broad-ETFs and fixed income. TLT has lost 15% of its AUM in just 3 weeks, HYG has lost 13.5% of its AUM.

Source: Bloomberg, Financial Sense Wealth Management

Looking at fixed income, we’ve seen massive outflows from domestic corporate bond ETFs followed by government. Inflows have been into bank loans and the broad Bloomberg Aggregate Bond ETF.

Source: Bloomberg, Financial Sense Wealth Management

Looking at where flows are going based on maturity, we are seeing very large outflows from long-term bond ETFs and inflows into ultra-short and short-term ETFs. It is clear that investors are positioning for higher interest rates this year given the clear risks and concerns around inflation, which can longer be ignored or explained away as “transitory.”

Source: Bloomberg, Financial Sense Wealth Management

As we warned in April 2020, the stage had been set for much higher levels of inflation and it will catch the market by surprise. Current money flows are reflecting this reality, but those prepared for this outcome were able to position ahead of time.

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Copyright © 2022 Chris Puplava

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