What ETF Flows Since the S&P June Low Can Tell Us

Traders are yanking cash from outperforming tech fund XLK, even as they load up on QQQ

Jul 22, 2019 at 11:35 AM
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At its intraday high last week -- which also happened to be its opening level on Monday morning, July 15 -- the S&P 500 Index (SPX) was trading just north of 3,017, in the neighborhood of a 10% return from its June 3 closing low (and, as a point of interest, from its March 8 closing low, as well). And by the time the trading week wrapped up, in the wake of some perhaps-more-dovish-than-intended Fed commentary, the S&P was just below the critical 3,000 millennium level, but was still up more than 8% from the low point of its bruising May-long sell-off.

Against this backdrop of stocks hitting new records, traders have begun to once again show some interest in equities. Data from etf.com shows that since the June 3 closing low, the SPDR S&P 500 ETF Trust (SPY) has garnered net inflows in excess of $11.6 billion -- the top exchange-traded fund (ETF) creation over this period. But where else have traders been putting their money to work during this rally?

Second only to SPY over this time frame is the iShares Short Treasury Bond ETF (SHV), with its inflows totaling $4.09 billion -- even as SHV has remained nearly flat on the charts, up just 0.3%, per the purple line on the accompanying graph. (Rather than being a "short" play on bonds, the name refers to the "short" time frame; SHV tracks U.S. Treasury bonds with 12 months or less until maturity.)

Outperforming SHV by a respectable margin in terms of share price action has been the iShares iBoxx USD High Yield Corporate Bond ETF (HYG), with the junk bond tracker trundling its way to a gain of approximately 2.8% since early June (shown in green). However, HYG has lagged SHV ever so slightly as far as inflows are concerned, netting $4.01 billion. The SPY competitor Vanguard S&P 500 ETF (VOO) has also drawn big inflows since the June 3 closing low, with this U.S. big-cap equity play taking in roughly $3.12 billion amid its 9% advance.

Meanwhile, in the tech ETF space, an interesting dichotomy has taken shape. The Invesco QQQ Trust (QQQ), shown in blue, has racked up net inflows of $1.58 billion during our lookback period, while the Technology Select Sector SPDR Fund (XLK) has registered net outflows of $707.55 million over the same stretch -- even while XLK has advanced 15%, per the bright orange line, to QQQ's 13%. For what it's worth, the more popular QQQ tilts heavily toward the FAANG contingent, while XLK's top holdings feature a heavy dose of fintech names.

In terms of outflows over the course of this rally to record S&P highs, ETF players have turned a cold shoulder to developed markets overseas. The iShares MSCI EAFE ETF (EFA) has booked net outflows of $1.68 billion, and the iShares MSCI Eurozone ETF (EZU) netted outflows of $461.18 million (not shown on the chart below).

But perhaps the most striking development has been the nearly 24% rally by the VanEck Vectors Gold Miners ETF (GDX) over the past month and a half, shown in yellow, against the backdrop of $829.53 million in net outflows. Investors also yanked $632.53 million out of the Direxion Daily Gold Miners Index Bull 3X Shares (NUGT) during this period, as NUGT vaulted 81.5% higher, and the VanEck Vectors Junior Gold Miners ETF (GDXJ) has collected both $514.35 million in net outflows and a 26.7% share price gain on the charts.

It was a month ago in this space that we first touched on these net outflows for gold mining ETFs in the face of technical strength, and at the time we acknowledged just cause for traders to suspect that the valuations may have gotten frothy -- but simultaneously underlined the ease with which skeptics could be caught off-guard by a prolonged directional breakout. And on the heels of a week that saw the S&P back down from 3,000 and Fed officials frantically try to walk back a rate-cut telegraph while gold mining outflows continued, we'd say there's still some capacity for this group to be surprised.

etf returns since june 3 closing low

Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, July 21.


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