Shakeup In Biggest ETF Pecking Order

Investor appetite for developed-market equities pushes EFA into No. 2 slot.

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Reviewed by: Cinthia Murphy
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Edited by: Cinthia Murphy

Investor appetite for developed-market equities pushes EFA into No. 2 slot.

 

The iShares MSCI EAFE ETF (EFA | A) is now the second-biggest U.S.-listed ETF in the market, rising from the fifth spot as recently as last summer thanks to solid investor demand for exposure to developed-market equities in recent months.

Since July 1, 2013, EFA has attracted roughly $6 billion in net inflows, growing to become the $51 billion ETF it is today, second only to the SPDR S&P 500 ETF (SPY | A). SPY remains the market’s leader by a wide margin, with more than $150 billion in total assets even after a month like January, when the fund saw $15 billion in outflows.

EFA is a market-cap-weighted portfolio that invests in equities from developed economies globally, but excludes exposure to the U.S. and Canada. The hugely liquid fund—it trades on average some $1.15 billion a day—tops its country allocation with the United Kingdom, at nearly 22 percent of the portfolio, followed by Japan, which represents 21 percent of the mix.

In the past 12 months, EFA has seen gains of 10.6 percent, which compares with SPY’s 19.5 percent gain in the same period.

EFA’s rise in the ETF ranks has come largely at the expense of emerging market equity funds. The $32 billion iShares MSCI Emerging Markets ETF (EEM | B) now ranks seventhfrom No. 4 as recently as last spring, and the Vanguard FTSE Emerging Market ETF (VWO | C), which had been the second-largest ETF as of last September, is now the fifth-largest ETF, with $40 billion, after losing some $7 billion in AUM in that time.

Both EEM and VWO have faced growing investor aversion to emerging market exposure triggered by the Federal Reserve’s decision to taper “quantitative easing.”

The ending era of easy money policies that marked much of the U.S. economic recovery in the past five years is impacting capital flows into emerging market economies, many of which are already struggling to spur growth.

In 2013, investors yanked a total of $5.3 billion from EEM and $8.3 billion from VWO, and the bleeding isn’t showing signs of stopping. So far this year, EEM has already faced net outflows of $5.8 billion, while VWO has shed $3.2 billion year-to-date.

Finally, the once-mighty SPDR Gold Trust (GLD | A-100), which started 2013 as the second-largest ETF in the world, with more than $72 billion in total assets, has now slid to the eighth ranking. Behind the slide are net asset losses of more than $25 billion in the past 13 months, and a slumping price performance that brought down GLD’s total assets to $31.88 billion.

Still, it’s worth noting that GLD remains the largest physical gold ETF in the market by a wide margin—it’s more than five times as big as its next competitor. What’s more, as an interesting historical footnote, it was once the biggest ETF in the world for a very short time, when anxiety about the macroeconomy peaked in the summer of 2011 following Standard & Poor’s downgrade of U.S. sovereign debt.

EFA_SPY_1-Year_Performance

Chart courtesy of StockCharts.com

January 2014 ETF Giants

TickerFundIssuerFlowsAUM ($,M)Turnover
SPYSPDR S&P 500SSgA-14,561.50154,468.60495,490.12
EFAiShares MSCI EAFEBlackRock640.5751,288.0329,134.34
IVViShares Core S&P 500BlackRock-1,223.8750,641.9221,900.09
QQQPowerShares QQQInvesco PowerShares-1,549.6442,916.4678,200.41
VWOVanguard FTSE Emerging MarketsVanguard-2,919.2840,341.0219,627.75
VTIVanguard Total Stock MarketVanguard1,019.9038,940.288,660.99
EEMiShares MSCI Emerging MarketsBlackRock-5,490.4432,057.4673,198.23
GLDSPDR GoldSSgA-189.8531,888.5720,833.84
IWMiShares Russell 2000BlackRock-2,941.4024,558.1198,752.55
IJHiShares Core S&P Mid-CapBlackRock484.5822,745.073,254.20

 

Cinthia Murphy is head of digital experience, advocating for the user in all that etf.com does. She previously served as managing editor and writer for etf.com, specializing in ETF content and multimedia. Cinthia’s experience includes time at Dow Jones and former BridgeNews, covering commodity futures markets in Chicago and Brazil equities in Sao Paulo. She has a bachelor’s degree in journalism from the University of Missouri-Columbia.