According to TrimTabs, ETF investors are so bad at picking the right time to buy or short-sell the equity markets that those doing exactly the opposite of what ETF players did in the past 10 years would have ended up making sevenfold profits while the S&P 500 Index lost almost 18 percent.

Using a proprietary index with 21 demand variables, the New York-based equity-market research firm said 90 percent of its Demand Index’s 729 percent returns since January 2000 (backtested) were linked to the negative relationship between long and short equity flows. Without those variables, the TrimTabs Demand Index still returned 53 percent, according to the study.

“Just do the opposite of what ETF investors do and you’ll do OK,” Vincent Deluard, the author of the study, said in a telephone interview. “The ETF is an inexpensive and relatively efficient way to invest passively. But the problem comes from ETF investors who try to time the market.”

TrimTabs offered two explanations for its conclusion. First, ETFs are mostly traded by retail investors and day traders, which they consider the least-informed and most emotional market participants. It also said hedge funds use ETFs when liquidity dries up, and many gravitated to ETFs after they were forced to close individual stock positions as markets went into a tailspin following the collapse of Lehman Brothers in the fall of 2008.

Equity ETFs had record inflows of $111 billion between September 2008 and December 2008. That was followed by losses of $29.7 billion between January 2009 and April 2009, when markets returned to normal and hedge funds could resume their regular individual stock picks, the TrimTabs study said.

It said the fact that it confirmed the contrarian hypothesis for one-, two- and three-month periods for both long and short equity ETFs strongly suggests the negative correlation is not the result of luck.

“When you don’t know anything about the market, you should buy and hold. But because ETFs are so liquid, they give a false sense of power, especially if you look at the leveraged stuff,” Deluard said. “It’s spectacular how much money people lose in those things.”

However, Deluard stressed that leveraged products were statistically less significant in the study than the rest of the equity ETF market, largely because they’ve only been around for about three of the 10 years the research covered.

TrimTabs said it’s not unusual to observe a strong correlation between flows and returns on a simultaneous basis because flows often chase returns. But the research firm said this was the first time it observed such a strong correlation on a forward basis, meaning investors could do very well by using past flow data as a contrary leading indicator.

“Simply put, ETF investors are exceptionally poor market timers in both directions,” the study said.