The market’s quick turnaround this year that has added $4 trillion in value to the S&P 500 is beginning to unleash a surge of cash into exchange-traded funds (ETFs), and also into funds focusing on growth stocks. The biggest beneficiary has been the world’s largest ETF, the SPDR S&P 500 ETF Trust (SPY), which tracks the 500 stocks in the benchmark index. SPY, as it’s known, has attracted more than $5.6 billion in the last week, the largest inflow of cash since the market bottomed in late December and comes after months of net outflows, according to a detailed story in Bloomberg


The S&P 500 already is up about 16% this year, so investors might be “looking at the headlines saying, ‘Well, maybe it’s got another 10 percent,’” Delores Rubin, a senior equity trader at Deutsche Bank Wealth Management,” told Bloomberg


Investors Pouring Cash Back Into World’s Largest ETF


  • $5.6 billion inflows to SPY
  • Largest inflow of cash since market bottom in late December
  • SPY inflows during one week about one third of total stock ETF outflows over two months
  • ETF up 16.3% YTD


Source: Bloomberg, Barron’s.


What it Means for Investors

Just a little over a month ago analysts were trying to comprehend the forces sparking outflows from ETFs, a burgeoning industry which has seen annual compounded growth of 16.8% in assets over the past decade. While overall flows into U.S. stock ETFs in December were positive at around $15 billion, the market’s plunge saw those flows turn negative in the first months of 2019 even as the market rallied.


It’s unclear how much the latest money surge is spreading beyond the SPDR S&P 500 ETF Trust to other stock ETFs. But the $17.5 billion of total outflows from U.S. stock ETFs between the start of the year and March 12 appears less significant considering the $5.6 billion inflow into a single ETF, albeit the world’s largest, in just one week. As the market rebound maintains strength, investors are becoming more optimistic. “People recognize growth is still there,” said Rubin.


Accompanying that optimism is a renewed interest in funds that manage growth stocks, which saw three straight weeks of inflows in the period that ended on April 12. That marks their longest streak since November, setting growth funds up for their best month of the year, according to Bloomberg.


Looking Ahead

Much of the optimism about growth comes as earnings season gets underway and is being fueled by expectations among some investors that the first quarter will be the low point for the year. That view has been shaped in large part by expectations that the Fed’s new dovish policy will extend the economic expansion, and thus bolster earnings. “Moving forward, we are just seeing an earnings slowdown and things are likely to re-accelerate into the back half of 2019,” explained Jeff Schulze, investment strategist at ClearBridge Investments. If he’s right, stock ETFs like SPY may see more inflows as investors’ anxiety about the market outlook continues to fall.


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