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ETF Investors Still Running Away From The U.S.A.

12 February 2010 at 11:15 am by Gary Gordon     Bookmark and Share    Follow EtfExpert on Twitter

In January, ETF fund flows depicted a number of seemingly incongruous events. Investors liked foreign stocks, but hated U.S. stocks. They distanced themselves from the risks of the financial sector, while they embraced the risks of energy and natural resources industries. Meanwhile, foreign currencies became outcasts, yet most forms of U.S. bonds received billions of new assets.

Perhaps ETF investors are being drawn to foreign equities because of the super-sized gains achieved in 2009. Yet that wouldn’t explain the enormous inflow into bond funds.

Or maybe ETF investors are drawn to popular sectors like technology, energy and natural resources because of corporate earnings. Yet that alone wouldn’t explain outflows from the health care or financial segments. (Of course, political risks might explain that.)

Let’s consider the possibility that investors were becoming concerned with overextended stock assets. They bail out on the perceived risk of U.S. financial stocks. They run from U.S. large-caps and U.S. mid-caps. They embrace nearly every aspect of U.S. bonds, from TIPS to high-yield. Traders even ramp up their Short ETF holdings.

How does any of this fund flow activity explain the enormous inflows into diversified emerging markets stock funds, foreign large-cap stock funds, tech and nat resources? Is this a form of decoupling in fund flows, even if the decoupling is not represented in ETF price movement?

Interestingly enough, investors ran from foreign currencies and most commodities as well. This suggests that there is an element of fear about the surprising surge of the U.S. dollar. Yet the possibility that a rising dollar would lower the value of one’s foreign holdings didn’t affect foreign fund inflows.

If you want to be a contrarian (and I’m not suggesting that you should), you might treat the January ETF fund flows as late-to-the-party dollars. More specifically, investors have been balking at most U.S. equities… maybe you might ratchet up your S&P 500 SPDR Trust (SPY) exposure. Investors are piling into Bond ETFs… maybe you should ratchet down your holdings. Investors have gravitated back to the U.S. dollar… you might now consider CurrencyShares Canada (FXC) and CurrencyShares Australia (FXA).

If you’d like to learn more about ETF investing… then tune into “In the Money With Gary Gordon.” You can listen to the show “LIVE”, via podcast or on your iPod. If you’d like to subscribe to ETF Risk Alert, click here.

Disclosure Statement: ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above. The company does not receive compensation from any of the fund providers covered in this feature. Moreover, the commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.

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