After today, there are just four trading days left in the third quarter, so there is no time like the present to examine quarterly flows trends into and out of exchange traded funds.
Before getting to that, it must be pointed out that on a year-to-date basis, “investors have redeemed $26 billion in U.S. stock mutual funds this year, while adding $46.6 billion in ETFs that track the very same domestic equities,” notes Nicholas Colas,chief market strategist at ConvergEx Group, a global brokerage company based in New York.
Third-quarter ETF inflows currently reside at $48.1 billion, bringing the year-to-date total to $121.4 billion, according to ConvergEx data. That means the ETF industry has its work cut out for it in the fourth quarter to match last year’s record haul of $247.3 billion or to even get to $200 billion of inflows for a third consecutive year. [Record ETF Inflows in 2013]
The other side of that coin is that any year in which we are talking about ETF inflows in the hundreds of billions of dollars can be considered a good year.
Although the S&P 500 is up just 1% in the current quarter, investors, buoyed by the benchmark U.S. index’s ascent above the 2,000 mark have flocked to S&P 500 ETFs. As Colas notes, the top three asset-gathering ETFs this quarter are the SPDR S&P 500 ETF (NYSEArca: SPY), iShares Core S&P 500 ETF (NYSEArca: IVV) and the Vanguard S&P 500 ETF (NYSEArca: VOO). Third-quarter inflows to those ETFs total over $15.1 billion. [S&P 500 ETFs Gain Cash]
“The industry is seeing good growth on the product side as well, with 146 new fund launches this year and only 29 closures. Total assets under management are $1,890.2 billion, spread across 1,653 funds and other exchange traded products. Keep in mind that the fourth quarter of any year tends to be the peak period for ETF asset gathering, so it wouldn’t be surprising if the industry got to $2 trillion soon after the end of this year,” said Colas in a note published by ConvergEx Wednesday.
With third-quarter inflows of $1.64 billion, the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) is the top asset gatherer among sector ETFs while the $1.22 billion that has flowed into the iShares MSCI Hong Kong ETF (NYSEArca: EWH) makes that the best third-quarter asset gatherer among single-country ETFs. [A Rush to Hong Kong ETFs]
Some exchange traded products beyond run-of-the-mill fare have also seen significant inflows in the current quarter.
“Levered/inverse products, which generally replicate one-day returns, are up some $4.7 billion year-to-date and $1.1 billion in the quarter. That may not sound like a lot, but the total AUM here is just $42 billion for all levered/inverse products and the YTD growth is therefore +10%. On the volatility side, with products that track the CBOE VIX Index for example, AUM is $3.1 billion and YTD money flows are $1.3 billion. The quarter to date number is $557.7 million. Both represent sizable, novel and immediate interest in what is still largely a niche set of offerings,” said Colas.
For example, the iPath S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) has added $253 million this quarter. Investors have also been making leveraged bets on select broad market indices and sectors. Although gold prices have been sliding, the Direxion Daily Gold Miners Bull 3X Shares (NYSEArca: NUGT) is heavier by $188 million this quarter. [Getting it Wrong Leveraged Gold ETFs]
As highlighted by the $114 million of inflows to the Direxion Daily Small Cap Bull 3X Shares (NYSEArca: TNA), some traders are waiting on a small-cap rebound, but that number coincides with almost $60 million added to the ProShares UltraPro Short QQQ (NasdaqGS: SQQQ).
SPDR S&P 500 ETF
Tom Lydon’s clients own shares of SPY.