Two weeks ago, when looking at the mid-March surge in equity ETF inflows, JPMorgan – which previously had been worried that retail investors may no longer be the marginal buyer of equities – concluded that as retail investors resumed their equity ETF buying, they had once again emerged as the marginal buyer of equities.
Not any more.
As Morgan Stanley’ S&T team writes in a note from this morning, over the past week, US Equity ETFs saw $7.5bn of outflows, a dramatic reversal from trends earlier in the year, and as a result 54% of all YTD inflows have now come out.
Furthermore, as the bank adds, all US-listed ETFs (Equities & Fixed Income) have seen over $6Bn of outflows over the past week, “so this feels much less like a rotation and much more like money being taken out of the market.”
As MS writes, while there has been a lot of discussion on SPY outflows, the MS ETF Desk is more focused on VOO (Vanguard S&P 500), which had $1.2Bn of outflows last week, a -5 std dev. event based on rolling 5-day changes in shares outstanding. The reason MS prefer VOO is that it tends to see much fewer fluctuations in shares outstanding than SPY and is largely retail held based on 13F filings. Generally, Vanguard ETFs (and other low cost providers) have benefited from investor focus on lower fees and the growth of products such as robo-advisors and ETF model portfolios. Which is why, as the MS Sales and Trading team notes, “seeing outflows of this magnitude is notable.“
Source: Bloomberg
VOO had its largest single day outflow last Monday (note that flows on Bloomberg are one day delayed, so the flow shows up on Tuesday’s trade date – this is true of most ETFs).
Source: Bloomberg
There is a similar trend happening across broader US Equities and Mutual Funds.
And a similar trend the Asset Manager Space, which was noted by MS’ futures team last week.
In light of this, how should traders proceed? Morgan Stanley’s advice: “Investors looking for a broad market hedge can consider S&P Put Spreads. The SPX May 2500/2400 put spread indicatively costs ~80bps (-3.25% / -7% OTM ref 2585, -15^, 4x max risk/reward).”
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