By November of last year, retail investors had liquidated the entirety of the individual stocks they accumulated during the pandemic-era buying frenzy.

That’s according to Goldman analysts including John Marshall and Isabella Rosenberg, who on Monday flagged what they called a “milestone”: Individual investors have now sold “more than twice” the single-stock Nasdaq holdings they acquired during COVID.

I talked briefly about that on Monday morning here. The natural question is what, if anything, those investors bought.

Equities had a bad year in 2022, but not nearly as bad as the kind of year bonds and IG credit suffered. Large stock drawdowns aren’t uncommon. By contrast, 17% losses for high-grade corporate bonds are unheard of, and 13% losses for US Treasurys are the stuff of multi-asset portfolio nightmares. For stocks, 2022 was famously a “crashless” bear market.

According to Goldman’s Marshall and Rosenberg, it would’ve been a mistake to extrapolate from retail selling of individual stocks to broader, deeper losses for US equities for a simple reason: The secular shift to ETFs is ongoing.

Measuring from the beginning of 2019, retail investors have bought a cumulative $800 billion in ETFs, according to Goldman. As the figure above makes clear, that’s a substantial sum, and it’s very likely that ETFs soaked up some of the retail money that exited single-names.

“The steady flow into ETFs throughout 2022 was a key reason for our relatively sanguine view of equity flow risks even as retail investors began selling individual stocks,” Marshall and Rosenberg went on to say, noting that their appreciation for that dynamic allowed them to “avoid the false signal of single stock retail selling as a reason to become bearish on markets in late 2022.”

The bad news: ETF inflows have slowed in 2023. As Marshall and Rosenberg put it, “Individuals are not only selling single stocks, but they have slowed their buying of equity ETFs.” Goldman’s model suggests flows were recently 6% weaker than spot equities.

Investors have sold $300 million worth of US equity-focused ETFs in 2023, according to EPFR’s data, which also shows that selling of US stock mutual funds YTD is approaching $47 billion. Goldman’s David Kostin recently estimated that households could sell as much as $1.1 trillion in stocks this year depending on macro conditions.