A January to Forget: ETFs Lose Almost $10 Billion

February 6th at 12:20pm by Tom Lydon

January represented a rarity for the exchange traded products industry, but that does not mean it was memorable as investors pulled $9.7 billion from exchange traded funds and notes in the first month of year.

That is a reversal of the trend of inflows and comes after ETF inflows reached a record last year, topping $200 billion for the second consecutive year. Equity-based ETFs were the culprits, shedding $10 billion “and diverged from the strong starts seen in the past two years. Investors continued to turn to ETPs to efficiently execute their market views during a volatile month for stocks,” according to a note out Thursday from BlackRock.

January 2014 was the worst January since 2010 in terms of ETF outflows. BlackRock, the world’s largest asset manager, is the parent company of iShares, the world’s largest ETF issuer.

Hampered by weak Chinese economic data and escalating concerns about external financing vulnerabilities, emerging markets ETFs bled assets in January. The total lost equity-based emerging markets funds, according to BlackRock, was $10 billion. The iShares MSCI Emerging Markets ETF (NYSEArca: EEM) and the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) rank as two of the worst ETFs in terms of 2014 outflows after achieving that dubious status last year. [Emerging Markets ETFs Bleed Cash]

“Last week’s selloff came as number of emerging market countries – including Turkey – raised their benchmark interest rates in an effort to stem the pressure on their currencies, and as political turmoil in the Ukraine and Thailand continued. As we’re coming off a long period of market complacency that sent risk assets to relatively high levels, these local emerging market headlines are starting to have an effect amid relatively fragile market sentiment and a generalized flight to quality,” BlackRock Chief Investment Strategist Russ Koesterich.

Several noteworthy emerging markets, including Brazil, South Africa and Turkey, have recently raised interest rates to defend slumping currencies, though results at the ETF level have been mixed. [Rate Hikes Not Helping These EM ETFs]

“The bright spots for flows in January were in non-US Developed Markets Equity, which gathered $11.2bn as a number of key themes from 2013 continued into the new year,” said BlackRock. “Pan-European Equity brought in $4.0bn aided by the most encouraging January Euro Zone PMI reading since 2011. Broad-based Developed Markets Equity (Global/Global ex-US) added $3.7bn and Japanese Equity exposures collected another $4.0bn.”

Fixed income ETFs saw inflows of $3.3 billion last month, with the bulk of that headed to short duration funds even as Treasury yields fell, providing some relief to longer-dated bonds. [Short Duration Credit ETFs]

U.S. sector ETFs raked in $2.9 billion last month with health care and technology combining for $2.2 billion of that total, according to BlackRock.

Chart Courtesy: BlackRock

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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