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.
Meanwhile, S&P 500 index-based mutual funds saw $216 million in outflows for the second week after $53 in outflows over the first week, which suggests that more investors are taking the recent pullback as an impetus to get out of mutual funds entirely.
Other asset categories also exhibited comparable flows. For instance, in the mid-cap growth category, investors pulled $132 million from Columbia Acorn Fund (ACRNX), the largest mid-cap growth fund over the second week while the iShares S&P Mid-Cap 400 Growth ETF (NYSEArca: IJK) attracted $48 million.
The story was the same in the fixed-income space, with investors pulling $569 million and $1.9 billion from U.S. taxable fixed-income mutual funds over the weeks ended August 26 and September, respectively. Meanwhile, $1.3 billion and $3.8 billion flowed into U.S. taxable fixed income ETFs over the two respective weeks.
“The trend of investors shifting assets to ETFs, and out of mutual funds, is consistent with what we have seen throughout 2015,” Rosenbluth added. “However, we think the market volatility has caused some investors to rethink their asset allocation approach and the products they use to help achieve their goals.”
For more information on ETF flows, visit our ETF performance reports category.
Max Chen contributed to this article.