Traders are unloading sector-specific funds at the fastest pace on record as emerging bear markets leave no corner of the equities world.
Nearly $11.9 billion has been withdrawn from sector exchange-traded funds so far in May, Bloomberg Intelligence data shows, keeping the category on track for the biggest monthly drop on record. This is the first time those ETFs have posted net outflows since September 2020.
The magnitude of the withdrawal speaks volumes as the breadth of the sell-off in the stock market: federal Reserve Monetary policy tightened in the face of skyrocketing inflation. Money has flown out of every category except consumer staples, which is linked to $154 million in inflows as consumers shift their spending to essentials amid building price pressures. According to Bloomberg Intelligence’s Eric Balchunas, past episodes of broad-based sectoral easing have prompted the Fed to swoop in to calm markets, with no such respite expected now.
Balchunas, senior analyst at the ETF, said, “Given how much traders themselves move between sectors, whenever you see almost all of them with outflows, that’s a bad sign because it shows that nothing is working.” is doing, there is no door.”
The S&P 500 fell as much as 2.5% on Tuesday before narrowing losses. Nearly every sector has declined in 2022 so far, except energy, which stalled as Russia’s invasion of Ukraine fueled a spike in commodities.
While investors have indiscriminately pulled out money from sector funds, the performance is not uniform. BI data shows a record 85 percentage-point gap between best- and worst-performing sectors over the past 12-month period.
The fleet of sector ETF outflows stands at a record $119 billion in 2021. For State Street Global Advisors, a major issuer of sector-specific funds is a byproduct of outflow traders shifting their risk as bearish sentiment reigns.
“Not a good thing. It’s normal risk-averse,” Matt Bartolini, head of SPDR Americas Research at State Street, said Monday on Bloomberg Television’s “ETF IQ” program. “The market will eventually start to find some form of bottom and overall, the sector is really a strong form of alpha-generation and if we take a long-term view, their use-case in the portfolio remains intact.”
Exactly where the bottom is for the stock is a matter of fierce debate. Even as the S&P 500 dipped briefly into bear market territory on Friday, significantly above average trading volume and the relatively implied CBO Volatility Index suggested the sell-off is yet to show signs of capitulation.
BI’s Gina Martin Adams also sees some signs of an impending destination.
She wrote Monday, “The pair-wise correlation in the S&P 500 is still below average, and a long way below the above-normal levels that typically characterize market crises, a worrying sign that a long-term bottom may be elusive.” Is.”
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