Nadig: Don’t Fear The ETN Bogeyman

May 12, 2014

ETNs look like they're getting traction, and for all the right reasons.

Bloomberg's Eric Balchunas is one of the smartest guys in the ETF business. Last week he wrote an excellent article on exchange-traded notes, highlighting the fact that several ETNs have been gathering a lot of assets lately, and waiving the caution flag in front of investors. It's "must" reading.

But I think Eric only gets it partially right.

First, let's look at how ETN flows have been going year-to-date. Through April 30, the 205 ETNs we track at had pulled in a net $1.4 billion in new money. While $1 billion is a lot of money, consider that the other part of the ETF industry—the other 1,374 non-ETN products—pulled in $34 billion in new assets.

Let's look at the big winners on both tables. Here are the top ETFs in the four-month period:

Ticker Fund Net Flows ($, mm)
VOO Vanguard S&P 500 2,598
VEA Vanguard FTSE Developed Markets 2,466
VTI Vanguard Total Stock Market 2,394
VGK Vanguard FTSE Europe 2,212
EZU iShares MSCI EMU 2,136
XLE Energy Select SPDR 2,109
VNQ Vanguard REIT 2,075
IVV iShares Core S&P 500 1,875
UWM ProShares Ultra Russell 2000 1,650
BND Vanguard Total Bond Market 1,417

The funds on this list are pretty vanilla stuff for the most part, with the exception of UWM, the ProShares Ultra Russell 2000 ETF (UWM). There are a few interesting tidbits, not the least of which is the presence of two S&P 500 ETFs on the list, while SPY, the granddaddy, has lost more than $16 billion so far this year. But that's another story.

Now let's look at the top 10 ETNs for the period:

Ticker Fund Net Flows ($, mm)
DGAZ VelocityShares 3X Inverse Natural Gas ETN 532
MLPI ETRACS Alerian MLP Infrastructure ETN 206
TVIX VelocityShares Daily 2X VIX Short Term ETN 172
VXX iPath S&P 500 VIX Short-Term Futures ETN 133
XIV VelocityShares Daily Inverse VIX Short Term ETN 118
ATMP Barclays ETN+ Select MLP ETN 110
MORL ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN 94
BDCL ETRACS 2X Leveraged Long Wells Fargo Business Development Company ETN 80
RJI ELEMENTS Rogers International Commodity - Total Return ETN 76
DJCI ETRACS DJ-Commodity Total Return ETN 68


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