More than $31bn has been ploughed into Exchange Traded Funds (ETFs) in just one week – despite a plunge in the value of tech stocks.
The $31.6bn ETF inflow for the week ending Wednesday June 14 came just days after major tech stocks took a tumble of roughly 3.5%.
The previous record high for ETF investment was $26.5bn for the week to April 26, according to US data analysts EPFR Global, quoted in the Financial Times.
The total amount of cash invested in January and February this year was $131bn, prompting fears of a bubble.
But UK stockbroker Hargreaves Lansdown says the dramatic inflow is the result of an ongoing trend towards passive vehicles, on the back of improving sentiment on the global economy.
“There have been a few rocky days in the market over the last week or so both in the US and over here, but looking a little bit further back the market is still riding pretty high and the reason for that, by and large, is improved sentiment to the global economy, and across the globe interest rates are still quite low,” said senior analyst Laith Khalaf.
“There is a lot more money going into passive funds and ETFs than there used to be – ETFs are used quite extensively by institutional investors as well as retail investors.”
He said even active managers who like to pick their own stocks, rather than just track the market like passive funds and ETFs, will use ETFs as a quick way of gaining instant exposure. Shares in ETFs can be bought and sold at any time during the trading day, rather than just at the end of the day, as with a mutual fund.
“If you are a manager and you suddenly see an inflow of £100m into your fund, you will have a watchlist of stocks you will want, but you might decide now is not the time to buy into them – or you may want to buy into them gradually.
"While you’re doing that you might well put the remainder of the money into an ETF to provide protection against underperforming the market. If you have a big inflow, were you to hold that as cash and the market were to rise 2%, that could provide a headwind to your performance."