I’m really really trying to resist all those impulses that come up when I see something that I believe is factually inaccurate. I no longer feel the need to strap on my armor of righteousness (+1 vs. Charlatans) and declare that “Someone Is Wrong On The Internet!” as I ride off into pointless battle.

But, and you know there was a but…

I got this from Axios this morning in my email box:

This is one of those classic claims that is technically correct (the best kind of correct) but masks what’s really going on. Let’s look at a chart of the actual ICI data equity flows into ETFs and Mutual Funds over the last little while:

There’s no question that 2021 has been a barn burner for equity flows.  But it’s even better just for ETFs — overall ETF flows as I write this are over $300 billion year to date, putting us on a theoretical track for over $1 Trillion into ETFs! However, painting the past week as some kind of monumental reversal in which fund buyers had despised equities and all of the sudden changed their mind seems a bit off.

Instead, what’s really going on here is, I suspect, the reinforcement of a trend we have seen in every single pullback since the invention of indexing. Going into 2020, we had a long, long history of redemptions from traditional mutual funds (largely active, largely underperforming, largely overpriced) and into ETFs (largely indexed, largely cheap). If you want a rough estimate on how much: the net flow has averaged roughly $1 billion dollars a day since the global financial crisis. That’s hundreds of billions a year, out of mutual funds, into ETFs, across all asset classes.

Every time the market sells off, we accelerate this trend, and we see big outflows from funds, and when that money goes back to work, it goes into ETFs. The chart above is so shocking because at no point in 2020 — even in March — did ETF investors exit the equities market. ETF buyers kept buying.  And now that all that mutual fund money has had a moment to sit on the sideline and think about what it’s done to deserve the penalty box, it’s coming back on the ice.

Into ETFs.

The moral of the story: always be skeptical of the spin, especially when it comes to anything related to flows. The real story is almost always more interesting, and more complex.