Where the ETF Inflows Are Going
February 8th, 2013 at 7:55am by Tom Lydon
Exchange traded funds continue to see inflows with a total of $28.6 billion in January. International equity ETFs saw the heaviest inflows, especially emerging markets.
“Flows were driven by international-stock ETFs, where diversified emerging-markets funds have been particularly strong, averaging a record $6 billion over the past two months. Flows into sector stock ETFs picked up in January allowing financial and real estate sector ETF assets to hit record levels. Flows into U.S. stock ETFs moderated somewhat,” Michael Rawson wrote for Morningstar. [Emerging Market Dividend ETF Trouncing Competition]
Broad-based emerging market exchange traded received $6 billion in new capital over the past two months. The iShares MSCI Emerging Markets Index (NYSEArca: EEM) had the highest inflows, with $3 billion alone. Rawson reports that EEM may have benefited from the recent index change that Vanguard made, with the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) gaining less than $1 billion. [Are Emerging Market ETFs Raising a Red Flag?]
Municipal bond funds and other taxable bonds have seen outflows over the same time period. The funds are still positive after the huge influx of inflows seen in 2012.
Other funds that saw inflows include the iShares Russell 2000 Index (NYSEArca: IWM), indicating the risk-on mood that investors are in. About $1.3 billion in inflows was into IWM. The WisdomTree Japan Hedged Equity Index (NYSEArca: DXJ) also saw inflows of $1.2 billion for the month. [Japanese Yen ETFs and the Carry Trade]
“While pundits have been eager to claim the start of a great rotation into U.S. stocks and out of bonds, the data do not fully support that view. Flows into equities have been strong, but there has not been a rotation out of bonds, at least not on average. In addition, it is emerging markets leading the charge, rather than U.S. stocks,” Rawson wrote.
Tisha Guerrero contributed to this article.
Full disclosure: Tom Lydon’s clients own EEM and IWM.
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