The top-selling ETFs this year reflect investors moving toward a risk-on posture and also the endless search for yield in a low-rate environment.
The most popular funds in 2012 include ETFs tracking U.S. large-cap stocks, emerging markets, high-yield bonds, gold and real estate.
However, solid inflows to volatility-linked ETFs shows that some investors remain nervous as the major U.S. stock indices flirt with all-time highs. They want a hedge.
Here are the 10 best-selling exchange traded products in 2012, according to flow data from Index Universe:
- Vanguard MSCI Emerging Markets (NYSEArca: VWO), $11.5 billion inflow: This emerging market ETF has been outselling its rival iShares fund, which charges more than triple the fees. They track the same MSCI index. However, Vanguard MSCI Emerging Markets will transition to the FTSE Emerging Index at some point next year. Some investors are using emerging market ETFs to diversify and capture the better economic growth rates, debt levels and demographics in developing countries. [Vanguard Index Switch Sets Emerging Market ETF Showdown]
- SPDR S&P 500 (NYSEArca: SPY), $10.5 billion inflow: The largest and oldest ETF. Doesn’t get more basic than this. Very low fees with an expense ratio of about 0.09%. Allows investors to trade or buy-and-hold a basket of U.S. blue-chip stocks. SPY is up about 18% this year.
- iShares iBoxx Investment Grade Corporate Bond (NYSEArca: LQD), $5.9 billion inflow: Corporate bonds are popular with investors not satisfied with 10-year Treasury yields below 2% and money market funds paying next to nothing. This ETF holds assets of about $24.5 billion and levies annual fees of 0.15%. The 12-month yield is nearly 4% and the effective duration is about eight years, according to sponsor BlackRock.
- iShares iBoxx High Yield Corporate Bond (NYSEArca: HYG), $5.9 billion inflow: BlackRock’s junk bond ETF version. More risk means more yield. The 12-month yield is just shy of 7%. Junk bonds have been hot and this ETF has returned more than 20% over the past year. [Is It Time to Scale Back on High-Yield ETFs?]
- SPDR Gold Shares (NYSEArca: GLD), $4.7 billion inflow: The largest precious metals ETF. Investors have been buying gold on concerns the latest round of monetary easing from central banks will ramp up inflation. They’re also worried about the Eurozone debt crisis and U.S. fiscal cliff. Seen as a form of disaster insurance.
- Vanguard REIT (NYSEArca: VNQ), $4.1 billion inflow: Investors have been coming back to real estate investment trusts after the sector was annihilated during the financial crisis. The asset class didn’t provide the diversification that investors wanted, but interest is perking up again as the economy slowly recovers. VNQ is up 15% year to date and yields more than 3%.
- SPDR Barclays Capital High Yield Bond (NYSEArca: JNK), $2.9 billion inflow: Another junk bond ETF. Investors are more willing to move down into speculative grade corporate debt in their quest for yield. Inflows to junk bond funds are on a record pace this year.
- iPath S&P 500 VIX Short-Term Futures ETN (NYSEArca: VXX), $2.8 billion inflow: This product stands out like a sore thumb on this list because it’s designed to allow investors to hedge or even speculate on market pullbacks. It’s geared to track CBOE Volatility Index futures contracts. VXX has been pummeled this year with a 75% decline on a falling VIX and “contango” in the futures market. It conducted a 1-for-4 reverse split last week. [VIX ETF to Reverse Split]
- Vanguard S&P 500 (NYSEArca: VOO), $2.8 billion inflow: One of the Vanguard ETFs that investors have been migrating to for their low costs. VOO has an expense ratio of 0.05%.
- PIMCO Total Return ETF (NYSEArca: BOND), $2.7 billion inflow. With Bill Gross at the controls, this actively managed ETF has quickly grown to $3 billion in assets following the March launch. Gross has been telling investors to ditch index-based bond ETFs laden with Treasuries, which he doesn’t like. More fund companies could follow PIMCO’s lead and introduce ETF versions of popular active mutual funds. [Bill Gross Touts PIMCO Total Return ETF’s Active Approach]
Full disclosure: Tom Lydon’s clients own SPY, GLD, LQD, HYG and JNK.