January is ‘Barnburner Month’ for Stock ETF Buying

ETF Trends

Investors pumped $25.2 billion into U.S.-listed ETFs during the first 17 trading days of the year and 92% of that cash has ended up in stocks, according to ConvergEx Group.

The ETF market has experienced a run rate of $1.5 billion of inflows a day, which exceeds the January 2012 pace by a healthy 66%, says Nicholas Colas, ConvergEx chief market strategist. [BlackRock Chief Says Investors Using ETFs to Buy Stocks]

Meanwhile, in mutual funds, investors have added $12.7 billion to stocks during the first two weeks of January. [Stock ETFs Rally as Investors Return to Risky Assets]

“With ETF flows so solidly ‘Risk on,’ at least we know the market’s huge move from the March 2009 lows is, finally, getting some attention,” Colas said in a note Tuesday.

“The bottom line here is pretty straightforward: January is proving to be a barnburner month for demand in ETFs which focus on equity investments. Not only are money flows well ahead of last year, but they are skewed dramatically towards riskier assets,” he wrote.

The ETF money flows of January 2013 “are a clear manifestation of more traditional risk-seeking, risk-embracing, risk loving capital,” the strategist added. “Equity bulls will want to see this trend continue. Bears will no doubt think it is a sign that the top is near.”

Recent ETF and mutual fund flows indicate that some investors are returning to equities after abandoning stocks in the wake of the 2008 financial crisis.

“Since the March 2009 lows, mutual fund investors have withdrawn $365 billion in capital from their U.S. listed funds which specialize in domestic stocks. During the banner returns of 2012, those same investors pulled $151 billion,” Colas points out. “Where did it go? Fixed income funds got it all, and more — $256 billion in total. ETFs which focus on domestic equities have seen $58 billion of inflows in the past year, but that is only a third of the $174 billion in total flows for all ETF products.” [‘Great Rotation’ from Bonds to Stocks?]

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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