Where All the Money’s Going in the Market Is Where You Should be Going Too

Shah Gilani|May 6, 2020

According to the Investment Company institute (ICI), year-to-date, investors have taken some $291 billion out of mutual funds and exchange traded funds.

But that’s not the whole story.

The ICI’s numbers represent net flows, meaning there were inflows, but they were dwarfed by outflows.

The story isn’t about net outflows, it’s about where the money went that flowed into the market.

Here’s where most of the money went and why you should follow it.

First, I’m not interested in mutual funds. Investors should be over them by now, save for a few that I like and stand behind in Money Map Report. ETFs are much better investment vehicles. They’re tradable all day, which means they’re infinitely more ‘liquid” than mutual funds, they’re cheaper than mutual funds, and there are thousands of specialty ETFs that mutual funds can’t touch.

That’s why ETFs are go-to products these days and will be for the foreseeable future.

So, let’s talk about inflows into ETFs.

Year-to-date $108 billion has been poured into ETFs, which we know courtesy of the ICI and one of my favorite sources, DATATREK, who broke the numbers down.

What’s infinitely more interesting and telling, which is what I’m here to tell you, is that almost all that money went into only 18 ETFs.

Most of it, $51.1 billion, or 47%, went into large-cap US equity funds, the big funds with huge assets under management. Why? Because they’re liquid, are index-following ETFs, and contain the movers and shakers investors want to own.

A good chunk, $28.5 billion, or 25%, went into four fixed income funds. Two short-term Treasury funds that buy Treasury bills, SPDR Bloomberg Barclays 1-3-month T-Bill ETF (BIL) and iShares Short Treasury Bond ETF (SHV) took in $14.1 billion. The iShares 1-3-year Treasury ETF (SHY) took in $5.3 billion. And the iShares iBoxx$Investment Grade Corporate Bond ETF (LQD) garnered $9.1 billion.

Three commodities funds gathered $19.4 billion, or 18% of the inflowing cash. Together, the SPDR Gold Shares ETF (GLD) and the iShares Gold Trust ETF (IAU) grabbed $12.9 billion, and the U.S. Oil Fund L.P. (USO) got $6.5 billion thrown at it.

The last 10% of the money went to Vanguard Total International Stock ETF (VXUS) which took in $2.8 billion, iShares MSCI EAFE Growth EEFT (ETF), took in $2.6B, and the iShares ESG MSCI USA ETF (ESGU) took in $5.2 billion

Now, here’s where the big bucks went:

Two giant S&P 500 tracking funds, Vanguard S&P 500 ETF (VOO) and iShares Core S&P 500 ETF (IVV) took in $18.3 billion.

Vanguard Total Stock Market ETF (VTI) grabbed $9.8 billion.

Invesco QQQ Trust Series I ETF (QQQ) garnered $9.3 billion.

Next up the HealthCare Select SPDR ETF (XLV) got $4.8 billion.

Vanguard’s Mid Cap ETF (VO) took in $3.4 billion.

And, not surprisingly, the Energy Select Sector SPDR ETF (XLE) attracted $2.8 billion.

If you want to make money in this market, all those funds are worth following.

When more money gets allocated to the same big funds, for all the right reasons, they’re the funds with the leadership stocks that have bounced the best off the bottom and house the big tech darlings, or hold the health care stocks or the energy stocks that investors are bidding up, or betting will bottom and bounce, in the case of energy.

At the same time, watching how this group trades when the market sells off is equally important.

Since a lot of money went into them, which helped lift the markets, that new money could take their profits and go to the sidelines.

If you see that happening, if the hot, momentum ETFs falter and see heavy selling, then you know the rally’s over and more selling will likely beget more selling.

The simple way to make money in this crazy market is by following the money.

Now you know where it’s going and what to watch to see if it starts coming out again.

If you have any questions about this, make sure you check out Money Morning’s Markets Live segment – I’m on every day at 3:45, talking about the market close, and what to expect the next day.

I can answer any questions you may have about ETFS, or anything else for that matter, right there.

See you there!

Until then,

Shah