During the late summer market swing, many investors were selling and buying funds to adjust their equity exposure. The change up, though, revealed that investors are ditching mutual funds and are increasingly turning to exchange traded funds to capture market moves.
On August 24, the S&P 500 Index plunged 3.9%, one of the worst days in recent memory after a 3.2% fall in the previous session, writes Todd Rosenbluth, S&P Capital IQ Director of ETF & Mutual Fund Research, in a research note. Later in the week, equities, though, pared the losses, with the S&P 500 slightly higher than it was a week prior at the close on September 2.
During the market tumult, investors yanked $301 million from mutual funds in the week ended August 26 and another $770 million in the following week, according to Lipper Data. Meanwhile, investors redeemed $5.0 billion from U.S. diversified equity ETFs in the week ended August 26 and turned right around to throw $7.8 billion back into equity ETFs in the following week ended September 2.
“In general, ETFs appeared to be the beneficiary of some of the mutual fund withdrawals,” Rosenbluth said.
Many investors have become enamored with the ease of trading and efficiency that ETFs have to offer over mutual funds. [Why Consider the ETF Investment Vehicle]
“Due to the intra-day trading aspect often commission free on certain platforms, we think some investors are more nimble with ETFs than they are with mutual funds,” Rosenbluth said.
Major stock mutual funds and ETFs showed similar cash flows, with investors pulling out of mutual funds and turning right back into ETFs to capture a potential rebound. For instance, S&P 500 index-based ETFs experienced $4.3 billion in outflows in the first week but saw $7.0 billion in inflows over the second week, with the SPDR S&P 500 ETF (NYSEArca: SPY) bringing in $7.2 billion in net inflows.