ETFs churning most cash ever as $47 billion flows to market

Money has been flowing in and out of financial markets more rapidly than ever before this year, a bullish signal as the threat of a U.S. government default fades.

About $47 billion has gone to exchange-traded funds that track everything from stocks to bonds to commodities since Sept. 1, according to data compiled by Bloomberg. That followed about $18 billion pulled in August, $40 billion added in July and $11 billion pulled in June, making it the most volatile period on record for flows. Almost $7 billion went to ETFs on Oct. 17 alone, as Congress passed legislation to avoid a default.

The unleashing of investor funds this year has coincided with the broadest U.S. stock-market rally in at least a quarter century as fresh cash helped overcome slowing profit growth and concern the Federal Reserve will cut stimulus. Resolution of the budget impasse sends an all-clear signal that will spur another round of deposits, according to David Kelly, the chief global strategist at JPMorgan Funds in New York, which oversees about $400 billion in long-term assets.

“The pattern we’d seen with flows for much of 2013 is going to resume now that things have settled down,” Kelly said by phone Oct. 17. “It’s a realization that the markets have been able to survive Washington.”

Budget Deal

The S&P 500 rallied 2.4% to 1,744.50 last week, surpassing the all-time high reached Sept. 18 after Congress ended a standoff over the budget that sent the index down as much as 4.1%. Increasing profits and Fed stimulus have helped the gauge advance 22% in 2013 and 158% since March 2009. The index fell less than 0.1% to 1,743.35 at 9:41 a.m. New York time today.

The 16-day government shutdown ended on Oct. 17 after President Barack Obama signed a bill to fund the government through Jan. 15 and extend the borrowing authority through Feb. 7. About $725 million went into ETFs on Oct. 16, $6.9 billion on Oct. 17, and $2.5 billion on Oct. 18, data compiled by Bloomberg show. Oct. 17 had the biggest daily inflow in a month.

Month-to-month swings in ETF flows totaled more than $53 billion since June, about six times the 13-year average, data compiled by Bloomberg show. Fluctuations are tracked by comparing outstanding shares in the funds, which change as demand from investors rises and falls, with their prices, which are pegged to an underlying index or asset.

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