The $1.5 trillion U.S. ETF business continues to grow at a rapid clip with 2013 inflows on track to break last year’s record.
“ETF flows continue at almost the same torrid pace as the first quarter and seem well on their way to adding $200 billion in new investor funds in 2013,” says Nicholas Colas, chief market strategist at ConvergEx Group.
Last year, U.S. ETF inflows reached a record $191 billion, surpassing the $169 billion flow in 2008. [Landmark Year for ETF Industry]
So far this year, the industry has experienced net inflows of $83 billion.
“Flows into equity products are 60% of total this quarter to date, lower than the 80% of Q1 2013,” Colas wrote in a note Friday. “Japan is the white-hot ticket among country-specific investing, with almost 25% of all ETF flows this quarter going into just two such products. On the ‘Not-so-hot’ side, inflation protection is basically stone cold with both TIP and precious metals ETFs losing significant assets this quarter to date.”
Indeed, WisdomTree Japan Hedged Equity (NYSEArca: DXJ) and iShares MSCI Japan (NYSEArca: EWJ) are the best-selling ETFs in 2013. [Yen-Hedged Japan ETFs Soar as Nikkei Tops 15,000]
Regarding the inflation trade, iShares TIPS Bond ETF (NYSEArca: TIP) is in a tailspin and has seen heavy redemptions. [TIPS ETF Down 13th Straight Day]
Investors have also fled gold ETFs amid a sharp pullback in the metal’s price. [Gold ETFs Lose Their Allure]
Conversely, low-volatility ETFs such as PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV) and iShares MSCI USA Minimum Volatility ETF (NYSEArca: USMV) continue to be popular with risk-averse investors. [Have Low-Volatility ETFs Overstayed Their Welcome?]
“After several conversations with sponsors and investors over the past few months, it seems clear that this is going to be one of the most important investment trends for the next few years,” Colas said.
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