Recent flows in stock and volatility-linked ETFs suggest some investors are turning a bit defensive on expectations that equities may be set for a pullback following a strong-early year rally.
Investors withdrew $1.8 billion from stock ETFs in the latest week, according to Thomson Reuters’ Lipper service.
The latest week’s data hint that some ETF investors think broad indices could see a retreat or a pause, Dow Jones Newswires reported.
“People are wondering: Is this where the market pulls back?” said Jeff Tjornehoj, senior research analyst with Lipper, in the article.
Still, inflows to equity-based ETFs have been extremely strong in 2013 despite last week’s redemptions.
So far this year, U.S.-listed ETFs have gathered $37.5 billion with 92% of the cash going into stock funds, according to ConvergEx Group market strategists. [ETFs Gathering Over $1 Billion a Day So Far in 2013]
“Year to date ETF money flows are overwhelming into equity products,” they wrote in a note Tuesday.
However, volatility-linked ETFs have also seen significant inflows despite a declining VIX. This suggests that some investors are hedging long equity portfolios, or even speculating on a correction.
The largest exchange traded product tracking futures contracts based on the CBOE Volatility Index is iPath S&P 500 VIX Short-Term Futures ETN (NYSEArca: VXX). [Inverse VIX ETFs Rise 170% as Volatility Hits Five-Year Low]
“It is down 31% year to date as the VIX has drifted lower. Yet, despite this performance, it has received $440 million in new investments,” according to ConvergEx. “Other hedging products exhibit similar performance, and yet many have also seen new capital in the New Year.”