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4 ETF Trends Show Cautious Optimism For 2018

Martin Small profile picture
Martin Small

Recent flows suggest that investors are priming for a rougher but hopeful future. Here's where the money went and why.

"A clock in a thunderstorm." That's how Robert Louis Stevenson described those fortunate, unflappable souls who move through life's ups and downs at their own pace, without getting rattled by the behavior of others.

That picture of equanimity could also be applied to exchange traded funds, which provided a steady hand as markets hit rough seas in the past quarter: mammoth inflows in January, followed by the steepest stock corrections since 2008. Yet no matter which direction markets moved, ETFs allowed U.S. investors to transact in them seamlessly and efficiently. The week of February 5th, over $1 trillion of ETF shares traded hands with no service disruptions, according to Bloomberg. That's millions of buyers and sellers meeting on exchange, essentially canceling out each other's trades.

In other words, prices went down, but the ETF structure functioned beautifully.

And while stock and bond prices generally ended the quarter in negative territory, flows into ETFs continued to tick higher, reaching close to $60 billion in the U.S. and $128 billion globally (Bloomberg). It was a clear demonstration of investors' faith in the versatility and sheer usefulness of ETFs.

A glass half full, mostly

Drilling down a bit, ETF flow patterns also shed some light on how U.S. investors are thinking about risks and opportunities and positioning their portfolios for the future. Broadly speaking, these moves acknowledge that 2018 will likely be quite different from 2017. They show that investors are still bullish, but they're also keeping an eye out for potential "thunderstorms," be they rising rates, inflation or geopolitical risks.

The cautiously optimistic outlook was expressed in four key investment trends in the first quarter:

  1. Stock investors are focused on diversification and

This article was written by

Martin Small profile picture
Martin Small, Managing Director, is the Head of U.S. iShares at BlackRock. He is responsible for directing strategy and leading activities across multiple functions, including sales, product management and development, marketing and communications, capital markets, and the operating platform. Mr. Small joined BlackRock in 2006. Prior to his current role, he was part of senior leadership for the Financial Markets Advisory Group in BlackRock Solutions, where he led teams that executed a wide array of advisory, transactional, complex financial modeling and specialized portfolio management engagements for global institutional clients. Prior to BlackRock, Mr. Small was a capital markets, investment management and transactional associate with the law firm of Davis Polk & Wardwell in New York. He earned a B.A. degree from Brown University and a J.D. from New York University School of Law.

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