U.S. equities are bouncing back from their 2018 fourth-quarter doldrums, but the majority of capital is flowing into exchange-traded funds (ETFs) and buybacks, according to data from Bank of America Merrill Lynch.
ETFs received $854 million just last week–a $168 million jump from the previous week. Buybacks accounted for a record-pacing $1.4 billion, which represents a 58 percent increase year-over-year based on the data.
These inflows come as investors exited single stocks to the tune of almost $1.5 billion between Feb. 25 and March 1.
“The fund flows show you that, while we’ve had a solid recovery off the Dec. 24 lows, the participation rate — both institutionally and by retail investors — has not been there,” said Art Hogan, chief market strategist at National Securities. “You’re seeing this V-shaped recovery in markets and yet positioning is still very light.”
Related: With The Marijuana ETF, Politics Matter
Retail Investors Shed Stocks Everywhere
The highest institutional inflows into ETFs were primarily in every sector, except consumer staples, communication services and industrials. Meanwhile, retail investors have been buying up ETFs in all sectors, but financials and consumer discretionary.
Institutions are dumping stocks in all sectors, but materials and utilities, while retail investors shed stocks all across the board.
“There is a feeling that the bull market is running out of steam. There’s a misunderstanding that bull markets die of old age. They don’t, but that’s clearly part of the psychology,” Hogan said. Also, “that abrupt sell-off we saw in December still has reverberations in the marketplace. The short-term muscle memory of how quickly things collapsed is still there, even though some of the things that caused it have reversed.”
In the ETF space specifically, a large number of inflows are going into emerging markets. Emerging markets combined have netted $12.8 billion when looking at the top ten year-to-date inflows with the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) leading the pack–$4.8 billion in YTD inflows.
According to some analysts, however, the sudden allocation of capital into EM doesn’t mean investors should deep-dive into the space without knowing the risks. In effect, it shouldn’t supplant the traditional safe havens, such as bonds or commodities, but be part of a larger diversification strategy.
“We’re making our investors aware that the emerging-markets trade is a pretty popular trade, and you’ve seen a lot of money pour into it,” said Christopher Stanton, chief investment officer at Sunrise Capital Partners. “It may not have the same level of outperformance that you’ve seen.”
For more market trends, visit ETF Trends.