An ETF That Proves the Fallacy of Flows

Tracking inflows to and outflows from exchange traded funds, for those truly passionate about ETFs, can be interesting and there is no doubt that flows data make for some compelling articles about ETFs.

However, and this cannot be understated in the case of equity-based ETFs, flows data are not predictors of future performance. It cannot be described more accurately than by Josh Brown on the Reformed Broker with this article title “Flows Don’t Follow Value, They Follow Performance.” Emphasis (our own) on “follow.”

In the case of the Market Vectors Agribusiness ETF (NYSEArca: MOO), outflows from the fund paint a deceiving picture of what has the potential to be a legitimate comeback story. [ETF Laggards Rise Again]

Here is the skinny on MOO. The ETF was once home to over $5 billion in assets and the largest equity ETF in the Market Vectors stable. Investors have pulled almost $1.3 billion from MOO this year, making it one of the 10 worst ETFs in terms of 2014 outflows. MOO is now home to $3.3 billion in assets under management, not even half the amount held by the Market Vectors Gold Miners ETF (NYSEArca: GDX).

Outflows from MOO are understandable. To a certain extent. Over the past three years while the Materials Select Sector SPDR (NYSEArca: XLB) is up nearly 29% and the S&P 500 is higher by more than 51%, MOO is up 2.2%. Investors frustrated with MOO’s laggard ways could be the cause of the 2014 redemptions. [Potash Recovery Could Lift Agribusiness ETF]