Capital flows to passive investment vehicles such as Exchange-Traded Funds (ETFs), continue to go from strength-to-strength, regardless of market conditions.
This chart from Citi Research explains why.
It shows the proportion of months where net inflows into ETFs were recorded since the start of 2008.
Whether stocks or bonds are trading down or up, inflows occur on the vast majority of months. Even when stocks have fallen, inflows have occurred on 73% of occasions. For bonds, when prices have fallen, the proportion of net inflows is even higher at 81%.
There’s actually not that much differentiation to when stocks and bonds have risen over a given month.
The lack of investor response to underlying market conditions, along with strong gains for both bonds and stocks over the past decade, helps to explain why funds placed in ETFs around the world recently surpassed the $US5 trillion level.
Passive investments are designed to perform in line with a benchmark index, such as the ASX 200 in Australia.
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