Analysis of exchange traded fund buying patterns at Charles Schwab the past two years shows the lion’s share of the inflows to ETFs were the result of investors putting to cash to work in the markets. Only a fraction of the money came from mutual funds.
Some clients are “getting off the sidelines” and back into the market with ETFs, said Beth Flynn, VP of ETF platform management at Schwab, in a recent call with reporters.
In a study based on money flows from its direct brokerage and registered investment advisor custody clients, Schwab said that the majority of new fund flows into ETFs is coming from cash. The study shows that 72% of retail investor dollars and 96% of registered investment advisor dollars that went into ETFs came from cash holdings.
“We think that’s a good thing. People are getting back into the market, and ETFs are providing that access and that exposure,” Flynn said in an Ignites report. [Exodus from Stock Mutual Funds Continues; ETFs See Inflows]
Around 15% of new assets from retail investor clients that went into ETFs came from mutual funds, whereas more money moved out of ETFs and into mutual funds on the advisor side. [ETF Buying Softens Fund Outflows]
ETFs continue to attract larger inflows by magnitude compared to mutual funds, adding on $77 billion to the $1 trillion ETF industry in the first nine months of 2011, while mutual funds tacked on $91 billion to its $9 trillion long-term mutual fund industry, according to Morningstar.
“For the last four calendar years there’s been a broad-based trend toward index strategies, whether they be in mutual funds or ETFs,” Joel Dickson, senior investment strategist at Vanguard, said in the Ignites story. “Obviously there has been a growing adoption of ETFs within that segment, but that tends to be a part of the passive investment trend.”
“For the most part, where ETFs are a challenge to the mutual fund industry is in incremental growth opportunities,” said Loren Fox, senior research analyst at Strategic Insight, in the report.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, 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.