E*TRADE Downgraded by IHS Markit, Citing Slowdown in ETF Inflows

November 17, 2017 — 10:48 AM EST

E*TRADE saw its rating downgraded to negative from neutral by IHS Markit, which expressed concerns about a slowdown in inflows to exchange-traded funds (ETFs) that hold shares of the New York-based online trading company.

In a research report, IHS Markit said that ETF activity on E*TRADE Financial Corporation (ETFC) is "negative and may be weakening." According to the research firm, there were net inflows of $3.85 billion over the past month into ETFs that hold E*TRADE. The firm said that this is among the lowest amount of inflows in the past year and that inflows appear to be slowing down.

IHS Markit also said that E*TRADE is ranked negatively when compared with the financials sector. In October, the firm already began raising concerns about outflows from ETFs that hold shares of the brokerage. At that time, IHS Markit said that September outflows stood at $36.42 billion and that the outflow rate appears to be picking up steam.

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On the positive side, IHS Markit said on Nov. 16 that short interest of less than 5% on E*TRADE stock is low, with the last change in short interest happening more than a month ago. This implies that the sentiment on E*TRADE is unchanged among investors who aim to make money by betting that a stock will decline. Shares of  E*TRADE were recently trading up 0.50%, or $0.22, to $43.98. E*TRADE shares are up more than 22% year to date.

For its third quarter, which ended in September, E*TRADE weighed in with earnings per share of  $0.49, lower than Wall Street expectations. However, revenue of $599 million surpassed Wall Street estimates, which called for $598 million. During the quarter, E*TRADE opened 26,000 new brokerage accounts, down from 162,000 a year ago. Net new brokerage assets were reported at $2.2 billion, which was also lower than the $5.4 billion the firm recorded in last year's third quarter. E*TRADE ended the third quarter with total customer assets of $365.3 billion, higher than the $307 billion it had at the end of last year's third quarter.

The company also announced the $275 million acquisition of Trust Company of America, which was not well received by Wall Street. Investors fear that the deal will prevent the board from looking for a buyer.