ConvergEx: ETF Flows Mirror Larger Trends

February 16, 2011

Action in ETFs is a window on the investment world in general, ConvergEx’s Colas says.

ETF fund flows in 2011 are increasingly reflecting larger global investment trends, according to research from ConvergEx Group, the New York-based financial services technology and analytics firm.

In his latest daily note, ConvergEx Chief Market Strategist Nicholas Colas said that both the S&P 500 and Dow Jones industrial average are up 5.6 percent year-to-date, while small-cap U.S. and broad-market overseas equity indexes have lagged.

"Money flows into U.S.-listed exchange-traded funds mirror much of this price action," Colas said.

So far this year, the $15.4 billion investors have poured into U.S.-listed ETFs, which passed the $1 trillion milestone in December, have gone primarily to equity funds. This is a reversal of fortune for fixed-income ETFs, which claimed the lion's share of new money in 2010.

Interest in U.S. equities even extends to fixed-income investors, who are funneling cash into junk bond products such as the SPDR Barclays Capital High Yield Bond Fund (NYSEArca: JNK) and the iShares iBoxx $ High Yield Corporate Bond Fund (NYSEArca: HYG).

"Within fixed-income ETFs, investor interest clearly skews to riskier, more 'equitylike' asset classes," Colas said.

The big losers in terms of outflows, according to ConvergEx, are commodity funds, particularly when it comes to gold, 2010's high-flier. The SPDR Gold Trust (NYSEArca: GLD) has shed $2.4 billion so far this year.

ConvergEx's note also provided some background on one of last year's bigger ETF stories: the travails of iShares' venerable MSCI Emerging Markets Index Fund (NYSEArca: EEM), which lost nearly $7 billion in January, as Vanguard's Emerging Markets ETF (NYSEArca: VWO) became the biggest broad-based emerging markets ETF.

Colas, substantiating what officials at iShares have said, says iShares' other country-specific products, such as the iShares MSCI Brazil Index Fund (NYSEArca: EWZ), the iShares MSCI Japan Index Fund (NYSEArca: EWJ), the iShares MSCI Canada Index Fund (NYSEArca: EWC) and the iShares MSCI Germany Index Fund (NYSEArca: EWG), have soaked up much of that fleeing cash.

iShares said at the time that VWO surpassed EEM, that it had a total of $87 billion in assets under management linked to the emerging markets.


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