By Mark DeCambre
Good afternoon: I’ll be guiding you today through some of the big weekly themes that MarketWatch is spotting in exchange-traded funds as Andrea Riquier carves out coverage for us in state and local budgets amid the COVID pandemic.
Send tips, or feedback, and find me on Twitter at @mdecambre to tell me what we need to be jumping on.
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Here’s what happened?
One of the most popular bets in ETF land, Cathie Wood’s Ark Innovation ETF /zigman2/quotes/204808965/composite ARKK -5.73% , is facing severe selling pressure.
We’ve written about the fund a bunch. It has been buffeted as investors, betting on a broad U.S. economic reopening and the release of pent-up consumer demand this summer, have favored more cyclically sensitive sectors and value stocks rather than the highfliers that Wood tends to include in her funds, like Tesla Inc. /zigman2/quotes/203558040/composite TSLA -5.26% and Teladoc Health /zigman2/quotes/207420252/composite TDOC -4.32% .
The interesting thing to note is that while popular bets like ARK are getting bludgeoned — though, mind you, it’s firmly up over the past 12 months — investors are piling into ETFs.
Notably, a lot of inflows from investors are going into some of the biggest ETFs.
“More money flowed into equity ETFs in the first four months of 2021 than all of 2020, and we could see more inflows to ETFs for 2021 while summer vacations are heating up,” Todd Rosenbluth, head of ETF and mutual fund research at CFRA, told MarketWatch.
The 10 largest ETFs have seen assets surge by about 48% from about $1.1 trillion to nearly $1.7 trillion as markets recovered from the selling induced by the coronavirus pandemic a year ago, according to CNN, citing data from Finbold .
CFRA’s Rosenbluth said that equity-focused ETFs, seeing inflows of $267 billion so far this year, have led the charge, and flows into iShares Core S&P 500 ETF /zigman2/quotes/204263249/composite IVV -1.95% , in particular, have offset outflows in fixed-income-oriented funds, as benchmark bonds staged a selloff, driving yields higher and prices lower, in recent weeks.
Rosenbluth’s chart illustrates the drive into equity ETFs over the past four months or so among the top 5 ETF providers:
The appetite for ETFs comes as the broader market has been heading higher, with the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -1.30% and the S&P 500 /zigman2/quotes/210599714/realtime SPX -1.89% not far from record levels, if on increasingly uneven footing. Rabid interest in exchange-traded funds doesn’t exactly mirror the unfettered demand for meme assets like GameStop Corp. /zigman2/quotes/203755179/composite GME +3.59% or dogecoin’s /zigman2/quotes/226077044/realtime DOGEUSD +2.52% stratospheric rise , but it’s worth watching which funds gain in popularity over the next seven months.
Rosenbluth said investors are being judicious in this case. “Investors are acting quite rationally rather than chasing thematic ETFs higher or pushing up more narrowly focused ETFs.” He said that investors are primarily gravitating toward investments in value-oriented areas of the market, those that have otherwise been unloved, or underloved, in recent months and years.
“Most of the money coming into ETFs in 2021 are for broad asset allocation ETFs to support long-term investment goals,” he said.
Is there an ETF for that?
A relatively new product designed to protect against inflation has emerged as investors grow anxious about rising producer and consumer prices as the economy recovers from the pandemic.