hello etf flows were “resilient” in september but have you looked beneath the surface citi saw “a clear riskoff bias” markets have been volatile as there’s “deep lack of conviction” as investors cope with fedrelated anxiety the chairman of davis advisors tells marketwatch in this week’s etf wrap please send feedback and tips to christineidzelismarketwatchcom you can also follow me on twitter at cidzelis and find me on linkedin money has kept flowing into exchangetraded funds despite a rocky september but there were signs of wariness as investors continue to grapple with big swings in markets and anxiety over the federal reserve’s aggressive monetary tightening there’s been “a manic depressive quality” to the stock market said chris davis chairman of davis advisors in a phone interview “you have this dramatic oversteering” both up and down that’s because many investors harbor a “deep lack of conviction” about the direction of equities focusing on weekly data that has stoked hopes and fears about the market and the economy according to davis he also pointed to “enormously bearish” sentiment among investors as the fed aggressively hikes interest rates after holding them unnaturally near zero “what we are starting to see is actually a return to normalcy – an unwinding of a massive distortion” said davis “what has terrified the market is a huge reversal” while etf flows remained “resilient” in september a look beneath the surface reveals that “a clear riskoff bias persisted last month across not just equities but fixed income as well” according to a research note from citigroup on oct 4 “etf investors were not high conviction buyers as flows continued to focus on low volatility exposures within each asset class” citi analysts said in the note “september flows followed the enduring yeartodate trend of cautious allocations” uslisted etfs attracted 235 billion in net new assets last month with us equity funds leading inflows according to the note us equity etfs saw 155 billion of net inflows followed by fixed income with 114 billion the report shows but “strong us equity trading etf inflows may be misread” warned the citi analysts “a spike in shares outstanding could be a sign of continued short demand” investors who short securities are wagering that they will decline citi considered that “capital markets and options dynamics” are influencing flows of heavily traded us equity etfs short interest has risen in such funds the analysts said while these funds had large inflows in september “we doubt it was potential dip buying” they wrote “instead we suspect it was further hedging” citi this month lowered its yearend target for the sp 500 spx by 200 points to 4000 which is above current trading levels after large backtoback gains this week the sp 500 slipped 02 wednesday to close at 378328 the index had tumbled 93 in september for it biggest monthly percentage drop since march 2020 when us stocks tanked on covid19 fears the spdr sp 500 etf trust spy was down 11  thursday afternoon bringing its decline so far this year to more than 21 factset data show at last check “sentiment overshoots that have priced in recession risk serve as a basis for our nearterm riskon rally call” the citi analysts said read the stock market is wrong the economy isn’t going to ‘blow a gasket’ just yet warns economist meanwhile etf investors’ persistent preference for low risk aligns well with the weak sentiment readings citi is seeing in its broader us equity strategy research according to its note on oct 4 bearishness has been building despite uslisted etfs in september seeing “another solid month of new asset gathering” with details beneath the surface of last month’s flows indicating that investors were “clearly reluctant buyers of ‘risk’” according to the citi analysts “flows skewed to lower volatility exposures across asset classes” they wrote “this mirrors the trend that has been in place all year” etf investors historically have been “more eager to put money to work than other investor bases” according to citi in equities the flow bias this year has been towards strategies with low volatility and involving dividends the analysts said “investors have shied away from more volatile exposures” such as smallercaps “generally unprofitable themes” and some singlecountry emerging market strategies their research found meanwhile stock market volatility has risen recently with the cboe volatility index trading around 30 thursday afternoon according to factset data “etf investor reluctance coincides with falling gross and net futures positioning data as well as a ‘panic’ level from the levkovich index” citi’s proprietary sentiment gauge the bank’s analysts said “it hit ‘panic’ in september for the first time since the onset of the pandemic” clients of davis advisors have indicated a preference for us equities over international stocks according to its chairman davis “if people are panicked they do not want to be looking internationally” though international stocks look relatively cheap he said the firm’s davis select us equity etf dusa is down around 228 in this year’s bear market while the davis select international etf dint has dropped 197 according to factset data based on thursday afternoon trading but the firm’s davis select financial etf dfnl which davis said is substantially invested in us stocks has outperformed both of those funds so far in 2022 it’s down around 168 this year based on thursday afternoon trading “we tend to be very conservative in how we build that portfolio” he said noting that he likes the financial stocks partly for their dividend yields within fixed income etf investors have “shied away from both credit and interest rate risk per the flows data” according to citi “ultra short and short treasury etfs were the most popular flow winners in september and yeartodate” the analysts said investors favored shortduration bonds after last month getting a reading on inflation that was higher than anticipated according to matt camuso etf strategist at bny mellon investment management “ultra short etfs were a huge gainer in terms of etf flows in september” he said they were “buying things like onetothree month tbills” he said “taking duration risk off the table” amid fears that the fed would have to keep up its aggressive path of rate hikes to tame stubbornly high inflation read these longduration bond etfs have cratered the most from their peaks over past year sinking below other assets as us dollar soars camuso said that investors were also “selling out of highyield” as they “tightened up” their portfolios from a risk standpoint amid concern that hawkish fed policy might push the us into a recession “combined the flow positioning and sentiment data help support our nearterm view that we could see a riskon reversion into yearend as bearishness gets too extended” the citi analysts said “still our mediumterm view is more muted on growing fed policy error and severe recession risks” as usual here’s your look at the top and bottom performing etfs in the week through wednesday according to factset data   distillate capital announced thursday that it launched the distillate smallmid cash flow etf dsmc to provide exposure to “150 us small and midcap stocks that meet specific parameters involving current and future free cash flow valuations and quality”   vaneck said thursday that it’s offering the vaneck morningstar smid moat etf smot which is designed to invest in small and midcap stocks in the us that “morningstar believes possess longterm competitive advantages”   simplify asset management announced sept 30 that it launched the simplify bitcoin strategy plus income etf maxi to provide exposure to the cryptocurrency as well as potential income from “selling shortdated put or call spreads on the most liquid global equity indices”   you can bet against jim cramer with a new etf from the fund manager who already shorts cathie wood’s stock picks fortune   new etfs offer investors a chance to bet on the metaverse the wall street journal   sparks fly as rosenbluth dives into the esg controversy on etf edge vettafi