Call it an ETF exodus.
U.S.-based exchange-traded funds have seen $7 billion leave their portfolios in May alone as the major averages stay on track for the first negative month of 2019.
But while the action might make it seem like investors are losing faith in the perpetually growing ETF market, experts say it’s more likely that buyers are simply rotating their positions — and that, in this landscape, rotating is better than selling out entirely.
Amid “slowing economic growth and slowing profits, investors should really target quality,” said Matthew Bartolini, managing director and head of SPDR Americas Research at State Street Global Advisors. “That can provide a little bit of a margin of safety if these microbursts of volatility really extend themselves.”
Bartolini, who spoke Wednesday on CNBC’s “ETF Edge,” said the Federal Reserve’s commitment to accommodative monetary policy should provide enough support for the markets for people to stay “broadly” invested. He noted that he’s seen ETFs focused on fixed income, government assets and aggregate exposure garner interest in recent weeks.
“I think what this tells us is that investors are willing to stay invested, but move towards more high-quality names with sustainable cash flows and high-quality balance sheets because, typically, in an economic slowdown, those are the types of stocks that tend to outperform,” he said. “That really just shows the sophisticated and tactical nature that ETFs can provide for clients that are moving in and out of the market based on the latest information.”