A US$246 billion bonanza means stock ETF inflows already beat 2020

IN less than four months, investors have already poured more cash into exchange-traded funds (ETFs) tracking US stocks than they did in all of 2020.

The inflows of US$246 billion this year eclipse last year's total of US$231 billion, according to data compiled by Bloomberg. Equity exchange-traded funds have added more than US$26 billion so far in April, after taking in over US$80 billion in both February and March.

With stocks trading near all-time highs, cash continues to flood into the US$6.2 trillion ETF market, especially from new traders looking for a piece of the action as the economy rebounds. There's also been growing interest in the category due to its tax efficiencies and lower costs relative to mutual funds.

"Investors usually are slow on the uptake when it comes to buying in after a bear market, and this was the swiftest bear market on record," said Sam Stovall, chief investment strategist at CFRA Research. "The market is doing so well, and they are preferring equity ETFs over mutual funds because of the tax consequences."

As cash floods into ETFs, debuts have also ramped up, notching the best start to a year in at least a decade, according to data compiled by Bloomberg. Issuers have rolled out numerous thematic funds in particular, as they try to tap retail investor demand for betting on hot market niches.

The ETF industry overall lured a record US$251 billion in the first quarter, with US$210 billion going into equities.

Passively managed mutual funds tracking equities have lost US$46.5 billion this year and their actively managed peers have faced about US$11 billion in outflows, the latest data from Bloomberg Intelligence shows.

Leading the equity ETF inflows in 2021 are two Vanguard Group products - the Vanguard S&P 500 ETF (VOO) and the Vanguard Total Stock Market ETF (VTI), with US$20.3 billion and US$13.7 billion, respectively. The BlackRock Inc's iShares Core S&P 500 ETF (IVV) has lured US$10.8 billion.

"Investors continue to flock to equity for growth and income," said James Pillow, managing director at Moors & Cabot. "With most debt instruments at negative real yields, while S&P 500 constituents are beating their respective earnings estimates by more than 20 per cent, there is little surprise money continues to pour into equity markets."

US Federal Reserve officials had strengthened their assessment of the economy and signalled that risks have diminished while leaving their key interest rate near zero and maintaining a US$120 billion monthly pace of asset purchases. BLOOMBERG