Photographer: Dan Istitene/Getty Images

Bull Market Buyers Might Surprise You

The buyers of stocks may not be who everyone thinks they are.

Last week, Goldman Sachs released a report saying the recent bull market is being increasingly fed by a single source: exchange-traded funds. The Wall Street Journal echoed on Wednesday with an article titled "ETF Buyers Propel Stock Market Rally." That certainly follows the recent narrative that the great shift to passive investing -- ETFs predominantly follow indexes -- is what is driving the market. It is also appears to be wrong, at least according to the most recent data, which came out earlier this month from the Federal Reserve.

Bull Run

Corporations are still the largest buyer of stocks, followed by ETFs

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Source: Federal Reserve, Goldman Sachs

ETFs, which it should be said are mostly just individuals buying stocks in new packaging, are indeed on pace to plow more money into equities this year than they have in the past, nearly $400 billion, up slightly more than 100 percent from a year ago. But they are still not the biggest buyer of stocks. The entities shoveling more money into the stock market than any other this year, as has been the case for the past few years, remain corporations. Buybacks are on pace to reach nearly $550 billion, or $150 billion more than ETFs.

Buybacks are down this year, by 13 percent, for the first time in a while. So a case could be made that the force driving the market is shifting, though it's a weak one. Earlier this year, many were predicting that buybacks would drop by 30 percent. But even if what's driving the market is shifting, ETFs still do not appear to be holding the keys.

Foreigners Rush In

Foreign investors have made the biggest increase in U.S. stock purchases this year. ETFs rank third.

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Source: Federal Reserve, Goldman Sachs

In terms of the increase in the source of absolute dollars flowing into the market, ETFs still rank far from first. No. 1 is foreign investors, who are on pace to buy up $219 billion worth of U.S. stocks this year. Last year, foreign investors were net sellers, cashing out $180 billion. That's an increase of $399 billion. Stock purchases from individual investors, buying stocks the old fashion way, are on pace to rise $207 billion from last year. ETFs come in after that.

The reason there appears to be so much focus on ETFs is because they are a relatively new phenomenon and also potentially a new risk. ETFs have traditionally been less of a buy-and-hold investment than, say, mutual funds, and the worry is all that money will flow out of the market with the assumed quickness that it has poured in. But that again may not be the case. If it's a shift to passive that is driving the ETF purchases, then you would expect that money to stick around longer than in the past. It is, after all, from passive investors, or those trying to be. That would serve to make the market a little more stable.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.