The month of May brought a bit of a slowdown among investors. Our research tells us that for the second quarter, ETF inflows through May 19 amount to just $12.4 billion. (For context, first quarter flows totaled $96.8 billion.) The slowdown is most pronounced for funds with U.S. and Europe equity exposure, and less so for other non-U.S. categories, including emerging markets (EM) and EAFE.
You may have heard the adage “sell in May and go away”, but that’s not what this is. In fact, I believe that in today’s global marketplace, no one “goes away” and that saying is totally outdated. The market is always active. So what’s behind the decreased activity we saw this month?
Separating the normal from the abnormal
Let’s stop for a moment and remember that we’ve seen this kind of “macro fluttering” before. Last year’s sluggish start can be partially credited to concern over currencies as well as the emerging markets outlook in a rising rate environment. BlackRock data shows first quarter ETF flows totaled $35 billion – just 11% of the full year total. Later in the year, we saw investors treading water again from mid-September through mid-October, a period during which flows totaled just $5 billion. If you recall, the Federal Reserve ended its monetary easing program in late October 2014.
In summary, a slowdown in activity is to be expected in the normal course of a year in the ETF industry. So what exactly can we learn from nothing? I had a mentor when I first started my career who told me that in times of uncertainty, markets will not react. His sentiments describe our current situation perfectly: Flows data tells us that investors pumped the brakes this month, treading water and waiting for clarity.
As my colleague Russ Koesterich points out, the U.S. economy is presently in limbo – not too hot or too cold. This could be an opportunity for investors to consider reevaluating their market exposure and potentially shift to more value-oriented equities, or simply wait it out in their current positions. The key here is to not dwell on the slowdown itself.