Risk-off trades meant investors had a taste for Treasurys at the expense of equity funds last month.
Investors yanked more than $15.32 billion from U.S.-listed ETFs in January, particularly from emerging market and U.S. equity funds. The asset flows last month demonstrated an appetite for risk-off assets instead, amid a growing sentiment that after a stellar run in 2013, the U.S. market might be poised for a sizable correction this year.
Overall, the outflows and market declines pulled total U.S. ETF assets down 3.4 percent to $1.643 trillion from $1.701 trillion at the end of 2013. Assets at the end of January were more than 15 percent higher than the $1.423 trillion at the end of January 2013.
No one seems to be questioning whether the U.S. economy will continue to expand in 2014, but more and more economists and analysts seem to be suggesting that a corrective move from the 30-plus-percent gains seen last year in the S&P 500 might be in the cards. So far this year, rising volatility as well as deteriorating investor sentiment could be pointing in that direction.
In the first month of the year, the S&P 500 ETF (SPY | A-97) bled more than $14.56 billion in assets, making it the single least popular ETF last month. The fund just came off a top-ranking in 2013 as the single most popular ETF last year, boasting net asset gains of $15 billion as it rallied to new record highs. SPY was one of nine equity ETFs that topped last month’s list of biggest redemptions.
Similarly, the iShares MSCI Emerging Markets ETF (EEM | B-100) and the Vanguard FTSE Emerging Markets ETF (VWO | C-89) were also among the biggest net-asset losers in January, facing net outflows of $5.49 billion and $2.92 billion, respectively.
Emerging markets remain under pressure stemming from the ongoing tapering of quantitative easing policies in the U.S. As the Federal Reserve trims its monthly bond purchases—a reflection of confidence in the U.S. economic recovery—capital flows are expected to center on the U.S. and other developed economies at the expense of emerging markets.
Interestingly, concerns last month about a corrective move in the shorter term and rising volatility in equities triggered a resurgence of demand for quality safe assets such as U.S. Treasurys. Yields on 10-year Treasury notes slid to 2.65 percent at the end of January, down from 3.03 percent a month-earlier, even as the Fed trimmed its bond purchases.
Funds like the iShares 20+ Year Treasury Bond ETF (TLT | A-76) and the Vanguard Extended Duration Treasury Bond ETF (EDV | C-39) were modest net gainers last month, raking in $311 million and $37 million, respectively. Broader fixed-income plays like the Vanguard Total Bond Market ETF (BND | A-96) and the iShares Core Total U.S. Bond Market ETF (AGG | A-97) also attracted net inflows in January.
In all, investors took roughly $15.34 billion from equity ETFs in January and about $1 billion from commodities funds, bringing down total U.S.-listed ETF assets to $1.642 trillion. U.S. fixed-income funds attracted a net of $545 billion in new assets last month.
|January 2014 Flows|
|AssetClass||Net Flows ($,M)||AUM ($,M)||% of AUM|
|January 2014 Biggest Losers|
|SPY||SPDR S&P 500||SSgA||- 14,561.50||154,468.60||495,490.12|
|EEM||iShares MSCI Emerging Markets||BlackRock||-5,490.44||32,057.46||73,198.23|
|IWM||iShares Russell 2000||BlackRock||-2,941.40||24,558.11||98,752.55|
|VWO||Vanguard FTSE Emerging Markets||Vanguard||-2,919.28||40,341.02||19,627.75|
|QQQ||PowerShares QQQ||Invesco PowerShares||-1,549.64||42,916.46||78,200.41|
|HYG||iShares iBoxx $ High Yield Corporate Bond||BlackRock||-1,257.54||13,912.13||8,334.97|
|IVV||iShares Core S&P 500||BlackRock||-1,223.87||50,641.92||21,900.09|
|XLY||Consumer Discretionary Select SPDR||SSgA||-1,086.69||6,052.54||9,807.23|
|MDY||SPDR S&P MidCap 400||SSgA||-664.28||14,321.37||10,793.02|
|XLI||Industrial Select SPDR||SSgA||-558.73||8,891.56||12,332.10|
A look at the month’s top gainers suggests that Vanguard had some solid momentum in January, raking in more than $4.2 billion in net inflows at a time when its main competitors—iShares and State Street Global Advisors—were net losers. The top three spots on the month’s Top Creations list are taken by Vanguard funds.
Those flows can be misleading, though. They most likely represent twice-a-year rebalancing that distorts the monthly data. That anomaly is caused by Vanguard’s creating of new fund shares temporarily—as part of the rebalancing—trades that are likely to be reversed in days ahead. Vanguard typically doesn’t comment on flows.
iShares, too, has to adjust its portfolios linked to index rebalancing, but the company typically does it in a way that avoids big moves in asset flows.
|January 2014 Top Gainers|
|VGK||Vanguard FTSE Europe||Vanguard||1,269.39||14,328.93||6,654.43|
|VTI||Vanguard Total Stock Market||Vanguard||1,019.90||38,940.28||8,660.99|
|BND||Vanguard Total Bond Market||Vanguard||926.81||18,869.27||3,846.64|
|EZU||iShares MSCI EMU||BlackRock||890.74||8,811.61||4,159.49|
|VEA||Vanguard FTSE Developed Markets||Vanguard||821.39||18,935.44||3,067.43|
|EFA||iShares MSCI EAFE||BlackRock||640.57||51,288.03||29,134.34|
|IYR||iShares U.S. Real Estate||BlackRock||585.77||4,192.20||13,620.03|
|IJH||iShares Core S&P Mid-Cap||BlackRock||484.58||22,745.07||3,254.20|
|EWU||iShares MSCI United Kingdom||BlackRock||473.97||3,920.38||1,497.38|
|VOO||Vanguard S&P 500||Vanguard||456.84||14,878.65||5,219.13|
|January 2014 League Table|
|Issuer||Net Flows||AUM ($,M)||% of AUM||Turnover|
|Invesco PowerShares||- 827.48||94,931.62||-0.87%||89,962.55|
|Van Eck||- 653.46||21,855.54||-2.99%||32,643.59|
|Barclays Capital||- 604.51||7,537.06||-8.02%||36,412.25|
|ETF Securities||- 125.52||2,877.93||-4.36%||575.05|
|US Commodity Funds||- 146.78||2,077.74||-7.06%||12,206.53|
|Emerging Global Shares||4.12||1,392.00||0.30%||355.92|
|Exchange Traded Concepts||165.41||1,048.04||15.78%||271.33|
|Highland Capital Management||2.00||130.00||1.54%||31.04|
|Arrow Investment Advisors||5.84||94.41||6.19%||31.57|
|Huntington Strategy Shares||0.84||29.69||2.82%||376.26|