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ETF vs. Mutual Fund Flows: Why the Divergence?

ETFs vs. mutual funds: why the divergence? Another week of outflows from domestic equity mutual funds, according to the ICI*. But equity ETFs continue to see inflows.

I noted earlier that AMG Data reported inflows into equity funds in September. However, AMG reports two figures for equity funds: with and without ETFs. When ETFs are removed, they too showed outflows from mutual funds in September.

Charles Biderman at TrimTabs told me that we have had outflows from equity mutual funds every week since the Flash Crash.

The lone bright spot for equity funds have been international funds, where there have been some weeks with modest inflows recently.

However ETFs had inflows throughout September, particularly in the first half of the month.

Why are equity ETFs seeing INFLOWS while equity mutual funds continue to see OUTFLOWS?

Biderman says its because ETFs continue to be used most heavily by professionals, who went long the markets in September. Equity mutual funds are used by retail investors, and — more than four months after the Flash Crash — they are still not enthusiastic about stocks, despite the gains of September.

And lest you blame the Flash Crash for everything, Biderman also noted that while there were modest inflows during weeks in March and April of this year, we have essentially had outflows from equity mutual funds for nearly three years.

And bond funds? They continue to see inflows.

* Investment Company Institute

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