Wednesday, March 26, 2014

Quantifying Money Flows in U.S. Equity Sector ETFs

I recently looked at money flows into the SPY ETF and found that there have been net outflows since the start of 2014. 
Above, we can see that net outflows in 2014 have been particularly pronounced among consumer-related shares:  discretionary issues (XLY) and staples (XLP).  (All are indexed to a value of 100 at the start of the year).

On the other hand, we have seen net inflows into financial (XLF) and commodity-related (XLB, XLE) ETFs during 2014 and strong recent outflows from technology (XLK).

I'll be tracking these data on the blog to identify shifts in sector rotation and where funds are flowing.  If you take a look at the sector performance graphics from FinViz, you'll see that returns have been very different depending on sector exposure.

Other interesting possibilities crop up with these data:  historical queries based upon money flows; sector-based pair trading ideas based on flows; tracking divergences among flows for signs of market turning points; etc.

One of my personal disciplines is to always have a market research project ongoing.  Those projects always have a quantifiable component, so that I can objectively gauge their promise--and their limitations.

From pharmaceutical firms to technology enterprises:  companies adapt to changing markets with continual research and development.  It's not a bad model for traders looking to build long-term careers in markets.

Further Reading:  Creativity in Trading