Institutional Money Managers Bail on the Market
By Hal M. Bundrick
NEW YORK (MainStreet) -- ETF investors must be suffering from whiplash; with massive investments one month followed by hasty retreats the next. In August, the tide was headed out again with record redemptions.
Investors yanked over $20 billion from exchange-traded funds last month, marking the biggest ETF sell-off in history, according to Morningstar. This follows the massive buy-in from July when investors poured $39.5 billion into ETFs. Institutional investors drive a good deal of the ETF market and seem to be flipping a coin as to which direction to take month-to-month.
U.S. equities saw the greatest exodus, with investors pulling $15 billion from the sector. Outflows were led by the venerable S&P 500 (SPY) ETF, which saw $16 billion in sales. The largest and most liquid ETF on the market, it is a favorite of institutional money managers for making rapid adjustments to portfolios.Taxable bond funds saw intense selling as well, with $6.7 billion checking out. "As interest rates have risen over the past few months, investors have sold bond funds, particularly those with a lot of interest-rate risk, and opted instead for bond funds with shorter duration," Michael Rawson writes in a Morningstar analysis. "Bank-loan funds have been particularly popular." The PowerShares Senior Loan Portfolio (BKLN) gained $345 million for the month, with a $3.9 billion buy-in for the year to date. IShares Floating Rate Bond (FLOT) attracted $288 million for the month of August, while IShares Barclays 3-7 Year Treasury Bond (IEI) lost $2.3 billion from outflows. There are funds in favor, including the PowerShares Buyback Achievers (PKW) ETF, which gained $273 million in new assets last month and has drawn $1 billion of investments year to date. The fund is comprised of stocks from companies that have bought back shares and has returned an impressive 28.7% over the past year compared with the 18.7% return for the S&P 500 Index. Investors are continuing to look overseas for opportunities, as international equity ETFs saw $3.2 billion in new money last month. "There has been a divergence in flows to emerging-markets funds between ETF and mutual fund investors," says Rawson. "While ETF investors have been pulling money out of emerging markets, mutual fund investors continue to buy. For the year to date through the end of July, mutual fund investors added $27 billion to diversified emerging-markets funds, while ETF investors have pulled $5.7 billion."
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