Arbitrage?

@ Joakim -

I'm wondering if the type of investor differs. Note that Vanguard VTI also saw inflows. Maybe the Vanguard mantra "Stay the course" is being followed by owners of Vanguard products. You also have automatic re-balancing. Note that BND saw outflows. So, maybe fund-of-fund effects within the Vanguard family? There's a certain population of folks (myself included) who have done nothing to our investments in response to the COVID-19 pandemic, and continue to invest automatically, via salary deductions.

By the way, if I'm following him correctly, Ray Dalio is saying that SHY is a really bad idea right now, since the return is basically ~0%, and the government is printing lots of money, and so it's throwing money away, since the value of a dollar will go down. It's not really a stable store of wealth going forward; it's worse than putting money under the mattress.

Could be. My hunch is that it’s mostly due to arbitrage opportunities that HFT firms jump on. Ie price differences between these similar ETFs and/or their corresponding components/basket.

I like Ray Dalio too.

I'm not sure I understand the HFT explanation. The ETF flows are net over a long period of time, suggesting buy-and-hold versus day trading.

I think the flows comes from in-house strategic/economic views, Vanguard seems to be more positive regarding the recovery than Blackrock which is more prudent.
Regarding SHY, this is technical, during stress, uncertainty and extreme measure, you'd rather like to invest in short term because it 1) remove some uncertainties as compared to 10yrs 2) reduce rate sensitivity exposure (have a look at rates volatility over the last 40 days!) 3) avoid the risk that when flows from "safe heaven" securities to risky securities, rates could increase for different reasons (outflows putting downward pressure on prices, increasing country risk premium (US 10 years - fed fund rates spread) due to the increased deficit and bugetary policies....
Markets are not rationale as we could think sometimes, they are mostly driven by flows imo, when you're risk-off and seek to reduce exposure, you have 3 solutions: sell and keep cash (very limited in reality because of the very reduced liquidity, bid-ask spreads literally explosed in march), short hedge (not permitted for all vehicles and its never perfect), buy low-risk assets (short term treasury notes)

@ Mathieu -

Vanguard, at least for retail investors, does not apply a risk-on/risk-off approach. It is all about asset allocation and "Stay the course" per John Bogle. Are you thinking that Vanguard is actively managing the ETFs? Or that they just have a different culture of investors?

I think the point about cash and short-term treasuries is that they are bound to erode in value, if I understand the guidance from Ray Dalio. The U.S. government is way over-extended, and its currency is not the store of wealth that it used to be.

I think there is two effects:
1- Vanguard is not solely an ETF provider, it also has an active management and advisor activity, thats why in-house economic outlook can drive their passive management inflows/outflows
2- if your perspective is more in line with Vanguards' you'll probably invest in their ETF vs other management companies.
Maybe i'm mistaken, but I don't see any other reason for that.

I agree with you from a theoretical point of view, I'm just giving you my opinion for the SHY inflows. There is some industry needs and regulations (UCITS for example) that keeps 'zero-value' investments alive, how do you explain that there's billions in cash and equivalent money market funds with negative returns ? Cause you have to, because you can face redemptions, because of collateral, etc.. and between an investment in which you could loose -3/-5% (or even worse if you can't easily sell them because of liquidity conditions) and negative yielding cash equivalents that returns policy rate + x bps, you would still choose (or be obliged to by regulation) the second even if it cost you.

@ Mathieu -

Thanks for the perspective on SHY inflows. I think the idea is that the price could be pretty high for parking money in dollars. Near zero percent return in one thing, but if the real return, in terms of what one can buy with a dollar after one year is negative X%, then how big will X be? There's some risk that X could be big, and so the idea is to cover that risk.

One confusion for me is wouldn't TIPS do the trick? But maybe one can have risk in dollars but no inflation?

https://www.bloomberg.com/news/articles/2020-04-17/-mountain-of-cash-swells-to-4-5-trillion-amid-rush-to-safety
https://www.bloomberg.com/news/articles/2020-04-14/bofa-poll-shows-extreme-investor-gloom-with-cash-at-9-11-high

It's one month old
https://www.barrons.com/articles/berkshire-hathaway-and-other-companies-sitting-on-tons-of-cash-51584352800