Investors have added more than $40 billion to U.S.-listed ETFs in the third quarter with buying picking up from the pace set during the first half of the year.
“With just eight days to go, ETF money flows for Q3 are +$46.5 billion across the 1,455 products currently on offer. If that holds through the end of the month, it will signal an acceleration from the $37.5 billion quarterly run rate average of the first half,” says Nicholas Colas, chief market strategist at ConvergEx Group.
“As for where all that capital is flowing, look to global equity markets – $34.9 billion (75% of the total) has found a home in stocks and $22.9 billion (49% of the total) specifically in U.S. equities. No, that’s not enough to offset the $40.3 billion that has exited U.S. listed mutual funds,” he wrote in a note Wednesday.
Among sector ETFs, financials and industrials saw the heaviest inflows with $1.6 billion and $1.1 billion, respectively, in the third quarter.
There is about $1.3 trillion held in ETFs listed in the U.S.
“Dividend-weighted funds have continued to catch on, as the current quarter’s money flows prove. Some $2 billion of new capital have flowed into such products in the third quarter, or 4% of the total,” Colas said.
The strategist predicts ETF assets will “explode” in the fourth quarter to surpass the inflows seen in the third quarter.
“The largest driver of this expansion will be investors who wish to lock in the tax treatment of capital gains according to 2012’s regulations, rather than roll the dice on what may come in 2013 and future years,” Colas wrote. “Where these investors put the proceeds of such sales will be interesting to watch, and recent history seems to point to a lot of that capital ending up in ETFs. What point on the risk spectrum these asset owners will choose is the real wild card.”