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Stock ETF Investors Pump the Brakes on Pullback Fears


Recent flows in stock and volatility-linked ETFs suggest some investors are turning a bit defensive on expectations that equities may be set for a pullback following a strong-early year rally.

Investors withdrew $1.8 billion from stock ETFs in the latest week, according to Thomson Reuters’ Lipper service.

The latest week’s data hint that some ETF investors think broad indices could see a retreat or a pause, Dow Jones Newswires reported.

“People are wondering: Is this where the market pulls back?” said Jeff Tjornehoj, senior research analyst with Lipper, in the article.

Still, inflows to equity-based ETFs have been extremely strong in 2013 despite last week’s redemptions.

So far this year, U.S.-listed ETFs have gathered $37.5 billion with 92% of the cash going into stock funds, according to ConvergEx Group market strategists. [ETFs Gathering Over $1 Billion a Day So Far in 2013]

“Year to date ETF money flows are overwhelming into equity products,” they wrote in a note Tuesday.

However, volatility-linked ETFs have also seen significant inflows despite a declining VIX. This suggests that some investors are hedging long equity portfolios, or even speculating on a correction.

The largest exchange traded product tracking futures contracts based on the CBOE Volatility Index is iPath S&P 500 VIX Short-Term Futures ETN (VXX). [Inverse VIX ETFs Rise 170% as Volatility Hits Five-Year Low]

“It is down 31% year to date as the VIX has drifted lower. Yet, despite this performance, it has received $440 million in new investments,” according to ConvergEx. “Other hedging products exhibit similar performance, and yet many have also seen new capital in the New Year.”

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.