VXX Leads Alternative ETFs Asset Inflows

May 24, 2013

Alternative ETFs assets are up 32 percent year-to-date, outpacing gains in all other asset classes, thanks to demand for VXX.

Investors have poured more than $83 billion into U.S.-listed ETFs so far this year, and while U.S. equities ETFs have attracted the most investor dollars on a nominal basis, it's alternatives ETFs that have actually seen their assets grow the most in percentage terms.

And that growth is nearly all tied to the iPath S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX), which has pulled in $855.3 million so far this year.

In all, total assets linked to alternative ETFs have grown 32.3 percent year-to-date after net inflows of $1.13 billion pushed total assets in the asset class above $3.5 billion.

It's relatively small potatoes compared to the $48 billion net inflows into U.S. equities in the same time period, but on percentage terms, equities-linked inflows amount to only a 6.3 percent increase in total U.S. equities ETF assets year-to-date.

There are about 50 funds that comprise what IndexUniverse classifies as alternatives ETFs—funds like the Cambria Global Tactical ETF (NYSEArca: GTAA), the IQ Hedge Macro Tracker ETF (NYSEArca: MCRO), the PowerShares DB G10 Currency Harvest ETF (NYSEArca: DBV) and the entire suite of VIX-linked strategies.

But it's flows into one strategy, VXX, that's driving the 32 percent asset growth in the segment. The fund, the largest alternatives ETF, with $1.4 billion in total assets, has now gathered some $855.3 since Jan. 1, according to data compiled by IndexUniverse.

IndexUniverse ETF analyst Paul Britt noted that many investors turn to VXX in an effort to hedge their equity positions, particularly if they are bracing for a downward correction in the stock market.

Correction Looming?

There's no question that this year's rally to record-high levels in both the S&P 500 and the Dow Jones industrial average, amid what many see as tepid U.S. growth at best, has many wondering whether a correction is in the cards.

This week alone, investors got a small taste of that possibility, as the S&P 500 slipped more than 1 percent in two days to close Thursday at 1,650.51, while Japan's Nikkei plunged 7.3 percent, its worst one-day sell-off since the earthquake and tsunami in March 2011.

Based on the CBOE Volatility Index (VIX), VXX is often looked at as a hedging tool, because VIX and the S&P 500 Index tend to move in opposite directions, Britt recently pointed out in a blog.

The fund has now bled more than 40 percent of its value year-to-date after finding itself ranking among the top worst-performers in 2012.

That's to say that VXX attracts almost as much money as it loses amid active daily trading volume amounting to as much $1 billion, Britt said.

"VXX is like a big bucket of money with a hole in the bottom," he noted. "But investors do use it as a hedge when there's a lot of uncertainty in the market."

"This isn't unusual at all," added Britt. "VXX is a short-term vehicle used for short-term exposure."

Asset Class ETF Year-To-Date Flows
Net Flows ($, mm) AUM ($, mm) % of AUM
U.S. Equity 48,332.67 761,375.94 6.35%
International Equity 26,785.06 371,527.60 7.21%
U.S. Fixed Income 15,942.42 242,435.22 6.58%
International Fixed Income 3,110.05 28,520.69 10.90%
Commodities -16,529.58 86,040.69 -19.21%
Currency -38.09 2,562.63 -1.49%
Leveraged -1,186.88 13,991.14 -8.48%
Inverse 4,881.12 19,233.40 25.38%
Asset Allocation 999.01 3,613.49 27.65%
Alternatives 1,132.72 3,503.17 32.33%
Total: 83,428.52 1,532,803.97 5.44%

Find your next ETF

Reset All