Last year, investors poured a record $247.3 billion into exchange traded funds and notes, marking the second consecutive year inflows topped $200 billion.
With those massive 2013 inflows came at least two prominent themes: The rising popularity of smart beta or intelligent index ETFs and the repudiation of emerging markets funds. Smart beta ETFs “contributed a record $65.1bn of inflows in 2013 led by dividend-weighted funds, and nearly doubled the $34.2bn from last year,” said BlackRock. [Record Inflows for ETFs in 2013]
As for emerging markets ETFs, five of the 10 worst funds in terms of 2013 outflows were emerging markets funds, a group that included the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM). Outflows from emerging markets ETFs totaled nearly $11 billion last year, Investor’s Business Daily reports, citing the Investment Company Institute.
At the end of last year, there 335 smart beta ETFs with a combined $291 billion in assets, or 17% of the total at U.S. ETFs, IBD reported.
Things were even worse in January and February as investors pulled almost $12.6 billion from emerging markets funds. Those outflows ebbed last month and have recently turned into positive flows. [Investors Returning to EM ETFs]
In just the first 10 days of April, emerging markets ETFs raked in almost $4.6 billion, according to IBD. From April 1 through April 17, EEM has pulled in $3.83 billion while VWO has inflows of $651.5 million. Still, investors are approaching some single-country ETFs with caution. The iShares China Large-Cap ETF (NYSEArca: FXI) has lost more than $224 million since the start of this month as just one example.
Another, arguably more puzzling example, is the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ). The largest Brazil ETF has lost almost $463 million since the start of April even though the fund has surged about 21% in just the past month. [Investors Miss out on Brazil in Preference for Mexico]
As for smart beta ETFs, there is plenty of evidence that the popularity of these products is on the rise. For example, in the past 30 days, four of the top seven PowerShares ETFs in terms of inflows are smart beta funds. That group includes the PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV) and the PowerShares FTSE RAFI US 1000 Portfolio (NYSEArca: PRF).
WisdomTree (NasdaqGS: WETF) and FirstTrust have become the fifth- and eighth-largest U.S. ETF sponsors, respectively, due in part to lineups that comprised primarily of smart beta funds.
Vanguard FTSE Emerging Markets ETF
ETF Trends editorial team contributed to this post.