U.S.-listed ETF assets have climbed $224 billion this year due to price appreciation and net inflows of $133 billion, according to ConvergEx Group.
There are more than 1,500 exchange traded products listed on domestic exchanges with total assets of $1.6 trillion. Meanwhile, aggregate daily volume in ETF trading is up 10% from last year, to $63 billion daily.
“The success of ETFs in gathering assets continued in the third quarter of 2013, and with just a few days to go inflows total $59 billion,” said Nicholas Colas, chief market strategist at ConvergEx Group, in a note Thursday.
He said tracking ETF flows provides useful information for several reasons.
“First, ETFs have become an important go-to investment class for a variety of investors, from sophisticated hedge funds to mom-and-pop retail accounts. Flows correspond to interest in a particular asset type such as U.S. stocks or gold. Essentially, ETFs are to capital markets what Google Trends is to the Internet. Second, ETF trading can have direct effects on the underlying securities they track. When demand for a given ETF investment outstrips the market’s natural liquidity, authorized brokers step in to ‘Create’ more shares by purchasing the underlying assets,” the strategist wrote.
“Lastly, the transparency of ETF trading and asset composition allows for a very granular look at market trends,” Colas added. “Mutual fund flows, for example, only come out once a week and even then the data is delayed by a few days. ETFs, by their nature, provide more detail than mutual funds and the information is available daily.”
Here are ConvergEx Group’s top 10 takeaways from ETF third-quarter flows:
1. No “Great Rotation” yet. If you thought Q3 was the beginning of a tidal wave of bond money flowing into stocks, the data doesn’t support that theory. The stock/bond split of flows for all of 2013 is 89/9; for the third quarter it is 94/6. Not much of a difference.
2. ETF investors are back to buying Emerging Markets. Funds which track EM are up $4 billion quarter to date, versus a still negative $3.6 billion for the year 2013 as a whole.