The assets flowing into low-cost index funds at Vanguard and iShares may be earmarked for long-term investing themes rather than short-term trading vehicles. That’s not to say that in a steep sell off we wouldn’t see fund flows from these ETFs as well, but the evidence seems to support bigger fluctuations of buying and selling in SPY.

It’s also worth noting that Vanguard equity ETFs represent 5 of the top 10 funds for inflows so far this year. Both retail investors and advisers are continuing to embrace low-cost indexes with built in incentives such as waiving trading fees to build core positions in their portfolios.

Despite these recent outflows and over reaction to the selloff, I believe that SPY will retain its crown as the world’s largest and most liquid ETF for years to come. If the market resumes its uptrend, this cash will likely be put back to work in other sectors or focused opportunities. The Energy Select Sector SPDR (XLE) and Health Care Select Sector SPDR (XLV) are the reigning sector leaders in new inflows this year and may continue to attract new assets moving forward as well.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

Follow @fabiancapital

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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