Stocks Hit Record Highs as ETF Inflows Surge in Q1

Equity ETF inflows started the year with a breakthrough against the backdrop of the S&P 500's best first-quarter performance since 2019.

According to Bloomberg analysts Athanasios Psarofagis and Andre Yapp, investors poured $196 billion into exchange-traded funds in the first quarter. That marked the second-best start ever for ETFs in terms of inflows, with the strongest still coming in the first quarter of 2021, when investors poured $249 billion into ETFs.

In the first quarter, investors pulled their money out of safe havens like the money market and put it into riskier investments like equity ETFs as the market jumped. TakeSPDRStandard and Poor (name)500 Trust ETF (SPY)Measured S&P500The index rose 10% in the first quarter, its best quarterly performance since 2019. The tech-heavy Nasdaq Resonance 100 Index surged 9%, driven by tech giants such as Nvidia Inc. during which investors chorInvesco QQQ Trust (QQQ)9.12 billion dollars were invested.

"Technical indicators suggest the stock market may be a bit warm, but we think this is unlikely to stop the strong momentum and breadth of ETF flows," Bloomberg researchers wrote in the report.

The report says investors have been dismissive of popular index funds, instead increasing their cash holdings in more than 1,500 different funds over the last month.

"Breadth is [the real story]," tweeted Bloomberg ETF analyst Eric Balchunas.

Bull market drives broad-based oscillations in the stock market

Equity ETFs brought in $137 billion in the first quarter, with $76 billion entering the market in March alone, according to Morningstar Research. March accounted for 70% of the total ETF flows in the first quarter. Large U.S. hybrid funds took in the most cash, accounting for more than one-quarter of all ETF flows in the first quarter. Large U.S. hybrid funds took in the most cash, accounting for more than a quarter of all ETF flows in the first quarter. Morningstar data showed that US$32 billion was absorbed in March alone.

Morningstar researchers note that this time of year can also drive capital inflows. Equity inflows tend to be higher in the first quarter of the year as investors put cash from tax refunds and bonuses into the market.

Active ETFs Lead the Way

Investors' enthusiasm for active ETFs appears to be undiminished, according to Morningstar. Although they accounted for less than 10% of the market, they absorbed about one-third of the first quarter's capital flows.

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