Investors wearied by the volatility in stocks piled into bond exchange traded funds in the third quarter, while leveraged and inverse ETFs also experienced hefty inflows despite misdirected criticism of the financial products.
About $18.3 billion flowed into ETFs in the third quarter, with 73% of the total going into bonds, says ConvergEx Group Chief Market Strategist Nicholas Colas. Leveraged ETFs – both long and short funds – captured 15% of the inflow pie.
There have been 248 new ETFs launched this year, while 14 have been delisted, according to ConvergEx data.
“Industry sources tell us that trading in ETFs comprised 31% of all equity market trading in Q3 by dollar volume, up from 23.7% in Q1 and 25.7% in Q2,” Colas said in a note Tuesday.
ETFs have faced increased scrutiny as trading volume and assets under management continue to grow. For example, ETFs are being unfairly blamed for market volatility, rising correlations and even the 2010 flash crash. [ETFs Under the Microscope]
Leveraged ETFs in particular have come under fire for allegedly contributing to the wild swings in market, although those claims have been debunked. These high-octane funds, which allow investors to go both long and short, are trading vehicles that need to be closely monitored. They are also hedging tools. [How Volatile Markets Impact Leveraged ETFs]
Bond and leveraged ETFs saw their popularity soar in rocky markets during the third quarter. The 73% of all new money that went into bond funds was up from 31% in the first half of the year, according to Colas.
“Leveraged products were very big winners in the ETF assets under management race in the third quarter, with 15% of new ETF capital going to these products,” the strategist wrote. “That is the largest uptick I can recall, and reverses the 1% loss in incremental assets that these ETFs saw in the first half of 2011.”