A rocky October for stocks meant a record month for bond ETF trading

Trader Talk

Stock and bond ETFs associated with active trading saw heavy volumes and some withdrawals during October’s turbulent market conditions, while investors put money into exchange traded funds that are more associated with buy and hold strategies.

Not surprisingly, October 2018 was a record month for U.S. bond ETF trading, according to data from BlackRock.

The iShares Core Aggregate Bond Fund (AGG), the largest bond ETF with $53 billion in assets under management, had $2.6 billion in withdrawals, about 5 percent of assets under management, according to ETF.com. It’s a similar story with iShares Investment Grade Corporate Bond ETF (LQD), which also lost about 6 percent of its assets.

But here’s something interesting: The second largest bond ETF, the Vanguard Total Bond Market (BND), had small inflows.

There’s a similar trend with equity ETFs. The largest, the SPDR S&P 500 (SPY), saw outflows of about $5 billion, or about 2 percent of its assets under management. But SPY’s biggest competitors, the iShares Cores S&P 500 (IVV) and the Vanguard S&P 500 (VOO), both had inflows of about 2 percent of assets under management.

What’s it all mean? Some of the movement in S&P funds is due to fee wars as the biggest providers fight for investments, but Dave Nadig, the managing director of ETF.com, noted there is more going on. “The ETFs that are most commonly associated with active managers saw a lot of volume and movement because active managers were moving a lot of money around in October,” he told CNBC.

Nadig noted that those that are associated with more buy and hold strategies were more stable: “That to me suggests some shuffling here — traders getting out, but investors getting in.”

Nadig noted that technology stocks were among the most volatile in October, but the largest technology ETF — the Invesco QQQ Trust (QQQ), which tracks the tech-heavy NASDAQ 100 — had small inflows.

Another trend was investors putting money into international funds. Japan ETFs had 2.2 billion in inflows, increasing assets under management by 10 percent. iShares Core MSCI Total International Stock (IXUS) also saw notable inflows, along with one of the largest European fund, iShares Core MSCI EAFE (IEFA).

At least some investors were spooked by the volatility. There was a pickup in money investing in “safety plays.” Cash equivalent ETFs pulled in over $3 billion and large cap value ETFs pulled in $2.3 billion.

Finally, Nadig noted that despite unprecedented volumes, the ETF structures held up very well: “Nothing broke. There were no hiccups. This to me means the structure is just rock solid.”

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