ETF purchases continue surge in Q2

Investors poured money into stock and bond ETFs during the second quarter.

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Key takeaways

  • ETF assets under management are near $3 trillion.
  • Stock and bond ETFs attract big money in the second quarter.
  • ETF investors appear increasingly cost conscious.

Why follow fund flows?

Tracking fund flows can help you evaluate which parts of the market may have momentum, and can be particularly useful if you incorporate trends and patterns in your analysis. You can assess fund flows by asset category, region, and objective, among other characteristics. Additionally, if you're a long-term investor, you might look at annual or multiyear trends. If you have a shorter investment horizon, you might track weekly, monthly, or quarterly fund flows.

Demand for ETFs endured through the midpoint of 2017. According to BlackRock's latest Follow the Flow quarterly report, net money invested in U.S.-based exchange-traded products (ETPs)—which are composed almost entirely of ETFs1—was $112 billion in the second quarter (Q2) of 2017, the third straight quarter of more than $100 billion in net flows.

Will ETFs' momentum continue?

On pace for record year

Through the first 6 months of 2017, U.S.-based ETPs had net flows (i.e., money going into these funds less money going out) of $245 billion—on pace to easily surpass last year's $288 billion record annual total. That growth continues a longer, positive trend: Net flows were $462 billion over the past 4 quarters, helping ETP assets under management (AUM) reach an all-time high of nearly $3 trillion (see U.S.-based ETP assets reach record high).

Developed-market and global-equity (i.e., stock) funds led the way, followed by fixed income (i.e., bond) and U.S. equity funds (see Broad asset class flows: Q2 2017).

Cost has increasingly been a key driver as to where investors are allocating their money. Among all U.S.-based ETPs, those with management fees of 0.09% or less accounted for roughly half of the $112 billion in inflows during the second quarter (see Low-cost ETPs gain momentum in Q2). Indeed, the percentage growth of relatively lower-cost funds have outpaced higher-cost funds by a wide margin over the past several years (see ETP flow by expense ratio—3-year history).

Bond ETFs keep rolling

Just as stock ETFs have been on a roll, so too have bond ETFs. Bond flows were strong last quarter even amid the Federal Reserve's June quarter-point interest rate increase. Investment-grade corporate bond ETFs, which have accounted for the greatest percentage of bond fund net flows over the past 4 rolling quarters, tallied $12 billion during Q2 (see Bond fund flows maintain strength).

Meanwhile, U.S. Treasury ETPs gained $4.6 billion in net flows, led by blended-maturity bond funds (i.e., funds composed of varying maturities). Short-term bond funds also accumulated assets, while intermediate-term bond funds were mostly flat, and long-term bond funds experienced modest net outflows (see U.S. gov't bond ETP flow: trailing 12 months ).

Looking ahead

Based on these recent trends, stock and bond ETPs appear to have momentum of flows heading into the second half of the year.

At the start of the third quarter, U.S. stock ETPs, in particular, persisted in adding new money—with financial-sector ETPs reversing a short-term selling trend by taking in $1.3 billion during the week ended July 11. Not all sectors have been keeping up, however, as technology exhibited some weakness of late (net outflows of $397 million during the week ended July 11), along with the yield-sensitive utilities sector (net outflows of $90 million during the week ended July 11).

Of course, historical trends are not necessarily a harbinger for the future. Moreover, you should not take action based on any one piece of information, including fund flow data.

Nevertheless, fund flows can be a useful tool to help identify market trends, to see where investors are broadly putting their money. If you are interested in exploring the ETF market, one tool that may be of use is Fidelity's new ETF Screener, which can quickly sort through a lot of data based on the filtering selections you make. You can search for ETFs using a variety of characteristics, like the funds’ objectives, fundamentals, technicals, performance, volatility, trading characteristics, tax considerations, and analyst ratings.

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