Investors jump into ETFs that took a beating in the latest sell-off

Funds that track areas like small-cap stocks and semiconductor manufacturers are seeing inflows

Oct 29, 2018 @ 4:11 pm

By Bloomberg News

Investors in exchange-traded funds are buying the dip.

Cash is pouring into ETFs tracking areas of the market that have been pummeled in the October sell-off, like small-cap stocks and semiconductor manufacturers. The iShares Russell 2000 ETF (IWM) saw inflows of more than $1.17 billion last week, and the VanEck Vectors Semiconductor ETF (SMH) took in $492 million.

"It looks like the trading crowd doing some dip-buying as a result of the recent drop," said Eric Balchunas, Bloomberg Intelligence analyst.

Investors also added around $2.8 billion to the iShares Core S&P 500 ETF (IVV), which along with the Russell 2000 fund saw the most inflows of all equity ETFs last week.

"Demand for small-cap funds is a good indicator of U.S. risk tolerance as these funds provide diversification to up-and-coming companies," said Todd Rosenbluth, director of ETF research at CFRA Research. "They are more exposed to a strong U.S. economy and less connected to overseas trends."

The inflows came during a highly volatile five days for the financial markets. The S&P 500 Index fell 3.9% for the week, leaving it more than 9% below its September peak, while the Nasdaq Composite Index dropped 3.8% and the Dow Jones Industrial Average retreated 3%.

One industry sector where ETF investors are looking for value is chipmakers, which have been beaten up badly lately. The VanEck Vectors Semiconductor ETF (SMH) is down more than 15% this month but just posted its best week of inflows since April.

"With the volatility, there's an opportunity to make a quick buck," Mr. Balchunas said. "There are some people excited about all this because, for a while, everything moved very steadily with no volatility. You can see the trader crowd running around trying all sorts of things."

(More: The market doesn't care about positive earnings)

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