Following ETF Money

February 19th at 11:40am by Todd Shriber

The 2014 trend of outflows from equity-based exchange traded funds is not abating. At least not yet.

Last month, investors pulled nearly $10 billion from exchange traded products 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 BlackRock. [ETFs Bleed $10 Billion in January]

January 2014 was the worst January since 2010 in terms of ETF outflows. Things are not getting better this month.

“ETFs – which have been reliably winning share over MFs since the Financial Crisis – are still in the red for 2014-to-date, at ($8.3) billion of outflows. Dig a little deeper into the ETF flows, and the mysteries compound. U.S. equity ETFs are down $24.7 billion in assets from redemptions, with three products accounting for essentially the entire ETF exodus from domestic stock funds,” said Nicholas Colas, chief market strategist at ConvergEx Group, a global brokerage company based in New York, in a note out Wednesday.

The three ETFs referenced by Colas are the SPDR S&P 500 ETF (NYSEArca: SPY), iShares Core S&P 500 ETF (NYSEArca: IVV) and the iShares Russell 2000 ETF (NYSEArca: IWM).

Colas notes that bond ETFs have been the beneficiaries of the flight from U.S. equity funds, raking in $17.1 billion in capital since the start of this year.  Four of the top 10 ETFs in terms of year-to-date inflows and all of the top three are bond funds. [Bond ETFs Renew Safe-Haven Appeal]

Emerging markets have been problematic on the outflow front as well. Add the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) and the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) to the group of SPY, IVV and IWM, those ETFs have seen combined outflows of $35.2 billion in just six weeks, according to Colas.

“This is too large a number to simply note with an asterisk and focus on the other 1,562 exchange traded products that are, in aggregate, up $26.9 billion in fresh money for 2014,” he said.

There are bright spots amid the departures from broader U.S. equity ETFs with Europe being a prime example. The iShares MSCI EMU ETF (NYSEArca: EZU) and the Vanguard FTSE Europe ETF (NYSEArca: VGK) have brought in nearly $3 billion combined since the start of the year while the WisdomTree Europe SmallCap Dividend Fund (NYSEArca: DFE) recently joined the $1 billion in assets club after having less than $500 million in early December. [Europe ETFs Enjoying Massive Inflows]

Colas also points out that health care and technology funds have combined for nearly $6 billion worth of inflows.

Tom Lydon’s clients own shares of EEM, IWM and SPY.