In their inaugural edition of “ETF Market Matters,” global investment firm BlackRock introduced imputed flow, the measure of the influence of exchange-traded-fund flows on the trading of individual stocks, as a new metric that could give investors detailed information regarding the performance of a specific stock.
From a reverse standpoint, the weighting of an individual stock could influence the performance of an ETF, which could have a mutual benefit for the individual stock itself. An ETF increasing its holdings of a specific stock could signal bullishness moving forward and vice versa in a reduction in weighting.
Per BlackRock, “ETF share creations and redemptions resulted in 4.1% of U.S. equity trading. In other words, more than 95% of individual stock trading took place independently of primary ETF activity.” The larger collective of individual stock traders would certainly benefit from understanding if specific ETFs corroborate with the movement of equities or if it’s a non-factor.
Related: Why ETFs Don’t Contribute to Junk Bond Market Volatility
Either way, imputed knowledge provides more information an individual investor can use when deciding to allocate capital into a specific stock. The introduction imputed knowledge as a metric underscores the increasing use of ETFs as not only an asset allocation vehicle, but also as a way to extrapolate market information to determine where large blocks of capital are moving–thus, helping investors determine whether to follow the money or take a contrarian approach.
“When we looked at the record level of assets everywhere in the world, record levels of net new assets going in ETFs, we also found that were were an increasing number of institutions using ETFs, an increasing number of mutual funds using ETFs,” Deborah Fuhr, Co-Founder and Managing Partner for ETFGMI, told ETF Trends the Inside ETFs 2018 conference.
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