While ETF investors may have temporarily dipped out of large cap US stocks, small caps in particular are still in the black as investors feel they will benefit from the domestic agenda.
Record asset gathering halted
Shortly after the ETF industry hit the $5 trillion asset level and was celebrating this milestone, several large falls in global markets prompted massive outflows and resulted in March in the first net outflows of ETFs since 2008, mostly due to redemptions from large cap US equities. This is the second month of net outflows, and FactSet found that almost $9 billion was pulled from US ETFs in March.
There were inflows into other asset classes last month, like $3.4 billion into fixed income, but not enough to offset the $22.1 billion pouring out of US equities, found FactSet.
Small and mid caps avoid worst of storm
However, small and medium caps have been less badly hit.
Small caps have seen cumulative flows of $3.7 billion over the last month and $1.1 billion year to date, after a sharp turnaround in flows mid March. The flows come despite average returns of minus 3.7% since 1 January, and slipping 0.8% in the last month.
Small caps have benefited from President Donald Trump’s protectionist talks when it comes to trade deals and tariffs – after Trump talked about tariffs in March, the Russell 2000 index rallied almost 5 per cent. Russell 2000 stocks are also being seen by investors as a safe bet over larger, overvalued counterparts. Smaller, home-based stocks are also viewed as bigger beneficiaries of Trump’s agenda to cut red tape and taxes.
Mid-caps also saw a sharp spike in inflows from 12 March, accruing around $3 billion in three days, before falling again and leading to eventual outflows over the past month of about $126 million.
It’s a different picture for large caps, which suffered heavily during recent times of heightened volatility, fears of a market downturn and analysts’ commentary about overstretched valuations. The sector has lost around $3.1 billion in terms of cumulative outflows since the New Year, and returns have fallen sharply to minus 3.8% in that period.
Over one month, the outflows are a whopping $18 billion.