US Small-Cap ETF Gains Best In A Decade

November 13, 2013

IWM Inflows And Outflows

Take IWM, for instance—the market’s largest U.S. small-cap ETF with more than $25 billion in total assets. As recently as mid-October, IWM, which replicates the Russell 2000 index, was on track to being the second-most-popular ETF in 2013 thanks to net inflows of about $6.3 billion in the first 10 1/2 months of the year—the second-largest net creation in the ETF market at that point.

But the fund went on to end October with net asset losses of $1.69 billion that month alone, and so far in November, investors have already yanked a net of $3.4 billion from IWM—that’s a net asset loss of $5.17 billion in roughly six weeks.

The latest bleeding has all but erased its recently stellar asset inflow track record, which now amounts to only $1.4 billion in net inflows year-to-date. If you count November-to-date as a month, IWM has now bled assets in four out of 11 months so far this year.

To be fair, in a broader sense, investor demand for small-cap exposure has been strong in 2013, despite the month-to-month fluctuation.

As of Oct. 31, some $12.3 billion in assets had flowed into ETFs and mutual funds linked to the Russell 2000, Russell 2000 Growth and Russell 2000 Value Indexes since the beginning of the year, according to Russell Indexes data.

More specifically, ETFs tied to the Russell 2000 Index had gathered a combined $10.2 billion in fresh net assets through the end of October—an all-time record for this time period.

These funds, anchored by IWM, include the likes of the $300 million Vanguard Russell 2000 ETF (VTWO | A-85) and the newcomer $13 million SPDR Russell 2000 ETF (TWOK), to name a few. In all, there are more than 40 ETFs tapping directly into the U.S. small-cap equity space.

Now, since the end of October, IWM has faced sizable asset outflows—some $3.4 billion November-to-date, to be exact, which could raise questions as to whether the run in small caps is coming to an end. But as IndexUniverse’s Dave Nadig, head of Analytics, would say, asset flows are not an indicator of performance, and in this case, IWM has indeed continued to rally despite the asset bleed.

Since the beginning of the month, IWM has gained 0.25 percent, nearing its $111.35/share closing price—its highest ever—seen in late October.

 

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