October ETF Fund Flows Accelerate As Fear Subsides

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ETF TRADING RESEARCH
October ETF Fund Flows Accelerate As Fear Subsides
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• Hi, My name is Corey and Im with ETF Trading
  Research, today were reviewing our recently
  published article

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• October ETF Fund Flows Accelerate As Fear Subsides

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• US GDP growth slowed from 3.9 in the 2nd quarter
  to an annualized pace of 1.5 in the 3rd quarter.
  The cause of the slowdown was the sluggish global
  economy outside of the US and a drop in

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• exports made worse by a strong US Dollar. The
  slowdown was in line with expectations. And most
  likely one of the main culprits of the stock
  market selloff that hit US stock in August.

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• In addition, the healthcare industry was
  broadsided by several high profile news stories
  about price gouging and fraudulent sales. But
  October has been a very different story for US
  stocks.

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• 3rd quarter earnings have been a pleasant
  surprise. And central banks in Europe and China
  have been spurred into action.

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• The Chinese central bank lowered interest rates
  and reserve requirements while Europes central
  bank promised more stimulus. Whats more, the US
  central bank has put off raising interest rates.

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• And it now appears the first rate hike wont
  happen until sometime next year. Not
  surprisingly, the investors were happy with these
  developments that have proven to be beneficial to
  stocks in the past.

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• In fact, the SP 500 shot up more than 10 during
  the month. And it triggered a change in the
  emotion driving the market action.

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• The Emotion Driving October ETF Fund Flows

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• Fear had been the dominating Wall Street for
  months. Many of the indicators we use to track
  the emotional state of the market turned from
  fear to greed.

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• Market volatility, the option market, stock
  performance relative to bond performance, and the
  volume of buying all indicate greed is the
  dominant emotion.

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(No Transcript)
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• As you can see in this chart of the VIX,
  expectations of market volatility have plummeted
  over the last month. In other words, the fear of
  a 20 correction or bear market has evaporated.

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• And we can see this change in the ETF inflows and
  outflows.

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• ETFs With The Largest Inflows In October

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• One area of the market that had been hit hard by
  the August correction was the high yield and junk
  bond market.
• Demand for these types of investments dried up
  during the selloff.

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• And we saw the spread between investment grade
  bonds and riskier ones widen to the highest
  levels of the year.

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• As investors risk appetite has returned, inflows
  into ETFs that hold these bonds has soared. The
  SPDR Barclays High Yield Bond JNK led all ETFs
  with 2.6 billion in net inflows in October.

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• There were also large inflows into two other bond
  ETFs iShares iBoxx Invesment Grade Corporate
  Bond LGD had net inflows of 2.5 billion and
  iShares iBoxx High Yield Corporate

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• Bond HYG had 2.3 billion in net inflows. Thats
  more than 7 billion in inflows into these bond
  funds. This is a clear indication that the fears
  that had been headwinds for the market have
  subsided.

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• ETFs With The Largest Outflows In October

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• The October inflows gave us clear indications of
  fear subsiding. Theres really nothing that
  jumps off the page of the ETFs with largest net
  outflows in October.

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• Only one ETF had more than 635 million in net
  outflows and that was the SPDR SP 500 SPY.
  For an ETF with 183 billion in asset thats not
  even a drop in the bucket.

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• We did see some selling of small cap ETFs like
  iShares Russell 2000 IWM down 632 million and
  Vanguard Small-Cap Growth VBK down 387 million.
  

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• As well as outflows of 497 million in iShares
  Nasdaq Biotechnology IBB and 363 million in
  Market Vectors Gold Miners GDX. But these
  outflows are pale in comparison to the large
  inflows into the high yield bond funds.

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• Heres the bottom line The negative feedback
  loop that drove stocks and other risky assets
  down has been broken. Fear of a bear market has
  subsided and greed is now the dominant emotion on
  Wall Street.

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• As I pointed out last month, high levels of fear
  dont typically last long outside of bear
  marketsIf the negative feedback loop is broken
  it could catapult stocks higher in the 4th
  quarter.

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• I certainly appears stocks are heading for a
  strong run to end the year.

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