Retail investors bought a record $2.2 billion of stocks on Monday, with many seeking shelter in ETFs as the market melted down, data shows

• Retail investors bought $2.2 billion in equities during Monday's rout, according to Vanda Research.
• ETFs accounted for 44% of total retail purchases, higher than the average of 29%.
• The data suggest that retail investors were scared to buy the dip in individual stocks.

Retail investors shoved more than $2 billion into the US stock market during Monday's rout, taking advantage of sliding prices largely by ramping up purchases of shares in major index funds, data released by Vanda Research Wednesday showed.

Individual investors bought a record $2.18 billion in equities during the selloff at the start of the week, Vanda said in a note. The worst session for stocks so far in 2021 was set off by fears that rising COVID-19 infections will derail the recovery of the global economy. The benchmark S&P 500 index dropped 2.1% and the Dow Jones Industrial Average tumbled by 726 points.

Retail investors usually buy more stocks on days when the S&P 500 is significantly lower and they do so through index ETFs such as the SPDR S&P 500 trust and the Invesco QQQ Trust, said Vanda Research, whose VandaTrack segment watches retail investor activity in 9,000 individual stocks and ETFs in the US.

"What's striking about Monday's print is that ETFs accounted for 44% of total retail purchases, when the average is usually around 29%," said Vanda Research analyst Giacomo Perantoni, adding that there were unusually large inflows into index trackers relative to the market drawdown.

SPY tracks the S&P 500 and is the largest ETF, with more than $370 billion in assets under management, according to ETF Database. The popular QQQ ETF tracks the Nasdaq-100 index of large-cap growth stocks including Apple, Microsoft and Tesla.

The data suggest that retail investors were scared to buy the dip in the stocks that suffered on Monday and decided on the more straightforward avenue of buying indexed products, he said. Reopening stocks -- or those closely tied with the economy mending from the COVID crisis -- were among the worst-performing groups, he said, but the magnitude of retail purchases was 40% lower than in the last sell-off on June 28, at $120 billion compared with $202 billion.

"Institutional investors were dumping the stocks but found little interest from the retail crowd, making the sell-off even more violent," Pierantoni said.

Vanda also said it appears that the current pace of retail purchases is sustainable over the medium term.

"[Most] retail investors enjoy a stream of income (payroll, dividends, rentals, etc) that allows them to park more money into stocks. Hence, we wouldn't be surprised to see strong retail purchases going forward but their appetite to buy anything riskier than indexed funds and blue chips seem limited for now," he said.