In describing the amount of money that came into ETFs during the first quarter of 2017, "enormous" would be an understatement. "Record-breaking" is technically correct, but it also doesn't put the figure into proper context.
Instead, consider that after the first three months of last year, inflows into ETFs totaled $29.6 billion. Over the same period this year, $134.7 billion entered the space―more than four times the amount of 2016's first quarter. If inflows continue at this torrid pace, total 2017 inflows will reach almost $540 billion, blowing past last year's record $287.5 billion.
There's no guarantee that will happen. But the point is that the amount of money coming into ETFs is beyond the expectations of even the most optimistic analysts.
Many Reasons For Enthusiasm
Invesors had plenty of reasons to plow money into ETFs this year. By some measures, confidence about the economy and the stock market hit the highest levels since the dot-com mania of nearly 20 years ago. Trump's bullish trifecta of tax cuts, deregulation and infrastructure spending were the catalyst for that.
While none of his big economic objectives have yet come to fruition, just the anticipation of business-friendly policies pushed the S&P 500 up by 6.1% during the first quarter.
Then there's the secular shift away from high-cost mutual funds and toward low-cost ETFs. That has been occurring for years and certainly didn't change in Q1. The vast majority of money that came into ETFs during the period headed toward the cheapest exchange-traded funds.
Low-Cost ETFs Win
In fact, of the 10 ETFs with the largest inflows during the first quarter, nine of them had an expense ratio of 0.15% or less. That includes the iShares Core MSCI Emerging Markets ETF (IEMG). Its $6.6 billion worth of creations in the first quarter was the most of any ETF, and pushed its total assets under management to $27 billion.
Sentiment on emerging markets improved markedly from last year, when investors fretted about whether China was on course for a hard landing; whether a 1997-style financial crisis was brewing in the region; and whether Trump's trade policies would prove detrimental for emerging economies.
Broad Market Equity ETFs Lead The Pack
Despite the improving sentiment on emerging markets, investors were enamored with U.S. stocks, as evidenced by the big inflows into broad domestic ETFs. Three funds in the top 10 targeted the S&P 500, including the iShares Core S&P 500 ETF (IVV), the Vanguard S&P 500 Index Fund (VOO) and the SPDR S&P 500 ETF Trust (SPY). Notably, IVV's $6.2 billion worth of inflows were enough to propel its total assets to $102 billion, making it only the second ETF after SPY to cross the $100 billion milestone.
Other U.S. equity ETFs to garner big inflows were the iShares Core S&P Small Cap ETF (IJR) and the Vanguard Total Stock Market Index Fund (VTI). Each had inflows of more than $2.8 billion during the quarter.
Three international equity ETFs made the top 10: the Vanguard FTSE Developed Markets ETF (VEA), the iShares Core MSCI EAFE ETF (IEFA) and the iShares MSCI EAFE ETF (EFA), with inflows ranging from $3.3 billion to $4.3 billion.
The only fixed-income ETF to make the top flows list was the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), with creations of $3.4 billion. Most investment-grade bonds rallied modestly during Q1 even as the Fed hiked rates in March.
Given the pervasive bullish sentiment running through markets so far this year, there weren't many ETFs to see big outflows during the first quarter. In fact, not a single ETF had outflows of more than $1 billion.
The worst of the bunch was the First Trust Energy AlphaDEX Fund (FXN), with redemptions of $879 million. Some of that could have been due to quarterly rebalancing of First Trust's fund of funds, which go in and out of ETFs based on momentum and other factors.
At the No. 2 position on the outflows list was the iShares Russell 1000 Growth ETF (IWF), with redemptions of about $750 million. That was followed by the WisdomTree Europe Hedged Equity Fund (HEDJ), also with outflows of about $750 million. HEDJ continued to bleed assets despite a rebound in the European stock market.
Other notable names on the quarterly outflow list included the iShares Edge MSCI Min Vol USA ETF (USMV), the SPDR Bloomberg Barclays High Yield Bond ETF (JNK) and the iShares MSCI Mexico Capped ETF (EWW).
For a full list of the ETFs with the top inflows and outflows during Q1, see the tables below:
Top Gainers (Year-to-Date)
|Ticker||Name||Issuer||Net Flows ($,mm)||AUM ($M)||% of AUM||March 2017 Net Flows($,M)|
|IEMG||iShares Core MSCI Emerging Markets ETF||BlackRock||6,623.13||27,021.97||32.47%||2,396.88|
|IVV||iShares Core S&P 500 ETF||BlackRock||6,150.57||102,051.87||6.41%||4,314.11|
|VEA||Vanguard FTSE Developed Markets ETF||Vanguard||4,301.12||47,674.19||9.92%||2,109.18|
|VOO||Vanguard S&P 500 Index Fund||Vanguard||4,052.09||63,908.21||6.77%||847.67|
|IEFA||iShares Core MSCI EAFE ETF||BlackRock||4,032.24||21,213.79||23.47%||1,895.82|
|SPY||SPDR S&P 500 ETF Trust||State Street Global Advisors||3,969.39||241,587.94||1.67%||6,588.60|
|LQD||iShares iBoxx $ Investment Grade Corporate Bond ETF||BlackRock||3,391.93||30,566.61||12.48%||-314.98|
|EFA||iShares MSCI EAFE ETF||BlackRock||3,255.59||67,624.69||5.06%||1,605.08|
|IJR||iShares Core S&P Small Cap ETF||BlackRock||2,976.53||30,043.76||11.00%||17.29|
|VTI||Vanguard Total Stock Market Index Fund||Vanguard||2,827.48||76,250.29||3.85%||772.57|