ETF Response to a Bear Market Possibility

Volatility has returned to the markets after historical levels of dormancy. What does this mean for the ETF ecosystem? After almost $77 billion in inflows in January, what should we expect to see with increased volatility?

ETFs Take in 8 billion

Bloomberg noted last week that ETF flows were strong even though we experienced a sharp market sell-off. We decided to explore how ETF flows have historically responded to market declines.

HOW HAS VOLATILITY AND MARKET DRAWDOWNS AFFECTED ETF FLOWS HISTORICALLY?

We reviewed ETF monthly flows following a market pull back. Specifically, when S&P 500 returns were worse than -6%, we calculated the average of the following 3 months ETF flows.

As you can see, negative returns have actually been beneficial for ETF flows!

Average Monthly ETF Flows

The table below is the 20 worst months for the S&P 500 returns over the last 20 years, and the average respective ETF and Mutual Fund flows in the following 3 months.