ETF investors make poor stock mkt timers -TrimTabs

NEW YORK, April 21 (BestGrowthStock) – Investors looking to time
market swings should consider using money flows into exchange
traded funds as a contrary indicator, according to a report
from TrimTabs Investment Research released on Wednesday.

TrimTabs found that ETF investors are particularly poor
market timers. Comparing money flows into equity ETFs and
future returns on the benchmark S&P 500 (.SPX: ) shows a strong
negative correlation, regardless of time period or the
direction of the bet.

“Stock prices fall after equity ETFs rake in huge sums of
money, and they rise after ETFs post heavy outflows,” said
Vincent Deluard, global equity strategist at TrimTabs, in a
release. “Simply put, ETF investors are impressively wrong in
both directions.”

Exchange traded funds track an index, commodity or basket
of assets and trade like a stock. Providing easy
diversification, ETFs have gained in popularity. While timing
the market is not necessarily the goal of these investors,
those taking long positions will be looking for the underlying
asset to rise in value.

TrimTabs found that monthly equity ETF flows and returns on
the S&P 500 one month later had a negative correlation of 21.4
percent. Over a two-month period, the negative correlation
rises to 45.6 percent and 52.4 percent for three months.

It is not unusual to see a strong correlation between
simultaneous flows and returns as investors often chase gains.
But the negative correlation between flows and future returns
suggests flow data can be used as a contrary leading indicator,
said TrimTabs.

The research service suggested two reasons:

Firstly, that ETFs are primarily used by retail investors
who may be less informed than institutional players.

Secondly, TrimTabs wrote they suspect hedge funds switch to
equity ETFs when liquidity in the broader market dries up.
Equity ETFs took in a record $111 billion between September and
December 2008 when hedge funds were unwinding individual
positions. Conversely, ETFs lost $29.7 billion between January
and April last year when markets returned to normal, it said.

Stocks

(Reporting by Leah Schnurr)

ETF investors make poor stock mkt timers -TrimTabs