Institutions sell off stocks as index funds, ETFs accelerate buying activity

Institutional investors and index and exchange-traded fund managers made big moves in US stocks in March, ramping up the pace of their respective selling and buying as the market broadly rallied.

Institutions sold $39.17 billion in stocks in March, roughly double the $19.63 billion the group unloaded in February and the nearly $19.93 billion per month it has sold on average over the past 12 months, according to the latest S&P Global Market Intelligence data. Index funds and exchange-traded funds (ETFs), meanwhile, bought a net $33.68 billion in March, well above the $1.21 billion they bought in February and about double the $14.11 billion the group has acquired on a monthly average basis over the past 12 months.

When capital flows from active, long-only institutional investors into index and ETF investors, it is typically driven by either a preference for low-fee passive investing over higher-fee active investing or a preference for broad-based investing over single stock selection, said Christopher Blake, executive director for S&P Global Issuer Solutions.

"Most months there is always some level of rotation driven by the first reason, as low-fee passive investing continues to chip away at large active manager capital," Blake said. "However, this month we believe the second reason is playing a bigger role than usual given the coinciding outflows from retail investors."

Institutional flows

Institutions reversed course in March, selling off IT and communication services stocks throughout the month, after buying these sectors the most in February.

Hedge fund flows

Hedge funds, which bought a net $1.60 billion in stocks in March — roughly what the group has purchased over the past 12 months — increased their buying of utility stocks the most in March, compared to February. The group sold off materials stocks the most, after buying heavily in this sector in February.

Retail flows

Retail investors bought IT stocks after selling on net in February but increased their selling of communication services stocks in March. The group sold a net $9.98 billion of stocks in March after buying $5.66 billion in February.

Retail investors have sold off a net $100.90 billion in stocks over the past year as they have become more active, largely due to the lure of finding a single stock investment with both high risk and return, Blake said.

Retail investors and institutional investors — a group that has sold a net $239.10 billion of stocks over the past year — both sold at a relatively high rate in March, while ETFs and index funds experienced large inflows.

This suggests that both groups were relying more on theme and sector-based investing strategies than looking for single stock opportunities, Blake said. For example, investors likely opted to buy into an ETF of AI stocks rather than invest in NVIDIA Corp.