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Abu Dhabi, UAESaturday 22 September 2018

Investors shed $23bn from world's biggest passive fund

SPDR S&P 500 outflows amounted to 8% of the fund’s total assets at the start of the week, a rate of withdrawals not seen since August 2010

Investors fled the SPDR S&P 500 (SPY) exchange-traded fund amid the recent market rout. Brendan McDermid/Reuters
Investors fled the SPDR S&P 500 (SPY) exchange-traded fund amid the recent market rout. Brendan McDermid/Reuters

Investors actively abandoned the world’s biggest passive fund during the onset of market mayhem.

The SPDR S&P 500 (SPY) exchange-traded fund suffered a record $23.6 billion in outflows last week amid the worst momentum swing in history for the underlying US equity benchmark.

Outflows amounted to 8 per cent of the fund’s total assets at the start of the week, a rate of withdrawals not seen since August 2010. A blow-up in volatility-linked products sent markets haywire, eliciting waves of risk aversion from jittery investors.

Strategists at JP Morgan said the swiftness and severity of the positioning unwind is a sign that further selling from the likes of commodity trading advisers and risk parity funds “should be limited from here”.

“The picture we are getting in the US equity ETF space is one of advanced rather than early state de-risking,” they added.

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The five-session stampede for the exits erased the previous nine weeks of inflows into the fund, which is issued by State Street. The combination of price declines and withdrawals erased $38.6bn in SPY’s assets. That’s nearly double the second-worst showing of $19.4bn in asset shrinkage during the week ending August 21, 2015, when China’s surprise devaluation of the yuan roiled markets. Prior to this recent market tumult, extreme enthusiasm for US equities had propelled the fund’s total assets above $300bn.

Flows activity in similar S&P 500 ETFs offered by BlackRock and Vanguard was much more muted last week. The iShares Core S&P 500 ETF actually took in $634.5 million, while the Vanguard S&P 500 ETF saw only a modest $209m exit the fund.

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