With the constant barrage of news reports discussing the Fed’s actions, the government shutdown and the debt ceiling debacle, it’s little wonder what’s preoccupying the minds of investors these days. A quick look at ETF flows over the past few months paints a picture of an increasingly uncertain investor population reacting – almost real-time – to each new development out of Washington.
The chart below illustrates how net global ETF flows have been riding the policy rollercoaster this year. Accommodative Fed actions and comments prompted a surge of investment in May, July and September; however, each month was followed by outflows or suppressed inflows as the good news wore off and uncertainty set in again. Most recently, Washington’s woes have again caught up with the market, with October inflows suppressed to the tune of $1.8 billion occurring in the first two weeks of the month (through Oct 14th). It appears that investors are once again taking a “wait-and-see” approach.
The majority of month-to-date outflows have been in the fixed income category (-$3.7 billion), offset by developed equity inflows of $6.6bn. We have seen similar suppressed activities in long-term equity mutual funds. As of Oct 9th, equity mutual funds had 2-week outflows of -$3.8bn, whereas bond mutual funds had $0.5bn of inflows. That compares with much more decisive activities last October – equity mutual fund outflows of -$17.0bn and bond inflows of $56.1bn.