Personal Finance

World’s Biggest ETF Sees Record $21 Billion Flow on Stock Rally

(Bloomberg) — An unprecedented amount of cash flowed into the world’s largest and oldest exchange-traded fund last week, as stocks rallied to near-record highs after the Federal Reserve indicated it could cut interest rates next year.

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State Street’s $478 billion SPDR S&P 500 ETF (ticker SPY) raked in $20.8 billion on Friday, the biggest inflow since the fund’s inception in 1993. According to Bloomberg Intelligence, it was the largest one-day flow for any ETF. For the week, the ETF garnered more than $24 billion, also a record, data compiled by Bloomberg showed.

SPY’s inflows coincided with several events known to increase trading activity, said Matt Bartolini, head of SPDR Americas Research at State Street Global Advisors. Friday was the final trading day before the S&P 500 and Nasdaq 100’s rebalancings went into effect, which can prompt funds managing trillions of dollars to readjust to align with new index compositions. Roughly $5 trillion of options also expired on the same day, which generally sees Wall Street managers roll over existing positions or start new ones.

“The flow that we saw on Friday was 100% organic from clients and investors and traders,” Bartolini said by phone. “It also reflects the massive Santa Claus rally that we have seen in the past few days — so momentum-trading going into SPY as well.”

Meanwhile, trading volumes in SPY on last Thursday and Friday were well above the one-month average. The Invesco QQQ Trust Series 1 (ticker QQQ), which tracks the Nasdaq 100, saw a $5.2 billion outflow on Friday, the most for a single session since the year 2000.

“A big indexer may have been rebalancing their books,” said Dave Lutz, head of ETFs at JonesTrading.

Todd Sohn, ETF strategist at Strategas, attributed the outflows to investors taking profits after the massive run-up in equities this year. The Nasdaq 100 is up 53%, fueled by gains in mega-cap technology stocks. Invesco’s RSP, which provides exposure to the equal-weighted S&P 500 index, pulled in $2.1 billion last week, in a sign investors are “seeking to further reduce exposure to Magnificent 7-type weights as 2024 begins,” said Sohn, referring to the biggest companies in the tech index.

Invesco declined to comment.

(Updates to say Invesco declined to comment in the last paragraph.)

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