May 21, 2022

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S&P 500: Investors Are Dumping Risky Stocks And Buying These Instead

Investors may be selling risky and speculative stocks. But they’re also piling into exchange traded funds, including many that track the S&P 500, at a breakneck pace.


More than $350 billion of money poured into ETFs this year so far going into May 12, says Todd Rosenbluth, head of ETF and mutual fund research at CFRA. That’s on pace to double the $503 billion in net inflows to ETFs in all of 2020.

“Even we are surprised by how strong the net flows have been in this short period,” Rosenbluth said. While they might lack the excitement of technology stocks, ETFs offer the diversification, liquidity, tax efficiency and low costs investors are looking for now.

ETFs Catch On As S&P 500 “Story Stocks” Turn Into Dead Money

Flows into stock ETFs are booming as many individual stocks that captivated investors turn into dead money — or worse — this year.

After soaring more than 700{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} in 2020, Tesla (TSLA) is down nearly 10{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} this year. Half the legendary FANG stocks, Apple (AAPL) and Netflix (NFLX), are down this year, too. And many of the popular “short squeeze” stocks like GameStop (GME) and ViacomCBS (VIAC) lost 40{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} or more of their value in just the past two months.

Meanwhile, money is pouring into low-cost and diversified ETFs, Rosenbluth says.

The Vanguard S&P 500 ETF (VOO) took in more than $21 billion in fresh money this year, including $2.7 billion in just the past month, CFRA says. That’s more than any other ETF. But close behind is the Vanguard Total Stock Market ETF (VTI), which includes smaller companies. It took in more than $15 billion this year. Shares of Vanguard S&P 500 and Vanguard Total Stock Market are up 8.5{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} and 7.7{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0}, respectively this year.

“In the past, investors have continued to turn to ETFs during market downturns,” Rosenbluth says.

Rotating With The S&P 500 Using ETFs

ETFs are also paving the way for investors to deal with the market’s sudden and sharp swing away from risky high-growth stocks into “cheap” value stocks.

The Vanguard Value ETF (VTV) is up 14.9{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} this year, blowing away the 3.4{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} gain in the Vanguard S&P 500 Growth ETF (VOOG). And many of the value-priced sectors are outperforming as well. The Financial Select Sector ETF (XLF) is up 24.5{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} this year.

None of this is missed by investors. This year, more than $10 billion poured into the Financial Select Sector ETF. That’s the fourth largest flow into any ETF. And it’s the largest inflow into an ETF that doesn’t track a broad U.S. index. Similarly, Vanguard Value ranked No. 8 for inflows this year hauling in more than $7 billion. “A rotation to value have been relatively easy to implement using ETFs,” Rosenbluth says.

Playing The Themes With ETFs

Investors also want to play “themes” that are likely to take off — while it’s hard to pick the winning companies. ETFs are a one-trade solution. President Biden’s infrastructure spending plans lit up interest in both infrastructure ETFs and clean energy plays.

The Global X CleanTech ETF (CTEC) took in more than $140 million in new money this year. That more than doubles its assets under management.

Themes, though, can be fickle. The runaway hit ETF, Cathie Wood’s ARK Innovation (ARKK), rode many of the hottest themes like electric vehicles, biotech and Bitcoin higher in 2020. But with innovation stocks sagging, money is going the other way. ARK Innovation’s price is down 18{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} this year. And investors pulled more than $630 million out of the ETF in the past 30 days. But it’s still up nearly $7 billion in flows this year, though.

“Outflows have been limited given the weak recent performance,” Rosenbluth said. “ARK is likely to manage the current situation and can use the decline in key holdings to rotate to favored names.”

What’s Next For ETFs?

More S&P 500 volatility could further power ETF flows. But in different ways.

ETFs holding bonds or defensive stocks could rise if investors look for shelter from a rocky S&P 500, Rosenbluth says. Already, the Vanguard Total Bond Market (BND) took in $8.7 billion this year.

But a weaker stock market, eventually, could prompt investors to pull back on ETFs, too. Stock “ETFs have done the heavy lifting in 2021 and if the market remains weak we could see a slower pace of net inflows,” Rosenbluth says.

ETF Cash Magnets

ETFs pulling in the most money this year so far

ETF Symbol YTD net inflows ($ billions) One month flows ($ billions) YTD {1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} price ch.
Vanguard S&P 500 (VOO) $21.0 $2.7 8.5{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0}
Vanguard Total Stock Market (VTI) 15.1 3.4 7.7{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0}
iShares Core S&P 500 (IVV) 11.3 0.8 10.8{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0}
Financial Select Sector SPDR (XLF) 10.4 1.6 24.5{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0}
Vanguard Total Bond Market (BND) 8.7 2.5 -4.0{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0}
iShares Core MSCI Emerging Markets (IEMG) 8.0 0.5 1.9{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0}
iShares Core Total USD Bond Market (IUSB) 7.4 0.9 -3.3{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0}
Vanguard Value (VTV) 7.4 2.3 14.9{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0}
ARK Innovation (ARKK) 7.0 -0.6 -17.9{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0}
Invesco S&P 500 Equal Weight (RSP) 5.9 1.2 14.5{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0}
Sources: CFRA, IBD, S&P Global Market Intelligence. ETF flows through May 11, ETF performance through May 12.

Follow Matt Krantz on Twitter @mattkrantz


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