Fund flows are headed back in the wrong direction for broad based Emerging Markets ETFs, with the two largest funds in the space, EEM (iShares MSCI Emerging Markets, Expense Ratio 0.67%) and VWO (Vanguard Emerging Markets, Expense Ratio 0.15%) seeing net redemptions year to date of approximately $3.4 billion and $3 billion respectively.
Those who read our column regularly may immediately note that outflows in these two products, despite even the latest rally in the EM Equity space to recent highs, is not a new theme, and has been going on for some time in the marketplace (trailing one year flows, EEM -$6.3 billion, VWO -$10.5 billion).
From an options standpoint, we have seen a few instances where seemingly bullish investors will use upside calls in EEM to get exposure to a possible rally at times in 2014, and so far, such bullish strategies have likely worked out rather well in terms of performance.
Mostly however, we see a continued theme of put spreads trading in the marketplace which reflect portfolio manager perhaps skepticism of the potential legs that the EM rally may have, and holders always seem eager to sell rallies and/or put on protective positions in case of a pullback, via options.
These two funds are not exactly hurting for assets however, as VWO still has a massive base of about $44.3 billion in AUM, followed by EEM’s $36.7 billion, so perhaps the trend of outflows is just part of the natural product cycle, and simply tied to market movement and manager sentiment.
Also, it is also very possible that some of the outflows of the aforementioned funds have found a home in a “newer” product in the greater EM Equity space, as the formerly “new” IEMG (iShares Core MSCI Emerging Markets, Expense Ratio 0.18%) now has an impressive $4.1 billion in assets under management despite launching in only late 2012.