Investors, adjusting to dollar strength against various currencies, plowed big money into currency-hedged strategies in February, and net inflows were a robust $34 billion, lifting total assets under management rose from end-January levels to a near-record $2.093 trillion.
The single-biggest asset gatherer last month was the WisdomTree Europe Hedged Equity Fund (HEDJ | B-51). The ETF, which has been on a tear for the better part of a year, pulled in almost $2.5 billion in February. It has gathered more than $5.5 billion so far this year, and now more than $12 billion in total assets under management, according to data compiled by ETF.com.
Another prominent theme in the February flows report was the resurgence of corporate bonds, high-yield corporates in particular. The high-yield market finished 2014 heavily out of favor, and the fact that the market's biggest junk ETF, the iShares iBoxx $ High Yield Corporate Bond ETF (HYG | B-64), was No. 2 on the February flows list behind WisdomTree's HEDJ was a clear sign that investors again see value in junk.
Apart from HEDJ, two competing ETFs that offer the same currency-hedged version of the MSCI EAFE Index that canvasses developed-market equities outside of North America were also on ETF.com's Top 10 list of biggest asset gatherers in February. In sum, international equities was the most-sought-after asset class last month.
The Deutsche X-trackers MSCI EAFE Hedged Equity ETF (DBEF | B-72) and the iShares Currency Hedged MSCI EAFE ETF (HEFA | D-41) pulled in $1.5 billion and $981 million, respectively. DBEF, riding the same wave as WisdomTree's HEDJ, is now a nearly $5 billion fund, while creations in iShares' HEFA make that fund a serious presence in a red-hot category.
The growing popularity of these strategies is linked to the relative strength of the U.S. economy on the one hand, and the relative weakness of the European economy on the other.
Indeed, the Federal Reserve in the U.S. appears to be on track to begin raising short-term interest rates by midyear, while the European Central Bank has pledged to launch a big quantitative easing program aimed at keeping the Eurozone economy from sliding into a deflationary spiral.
This has led to strong capital flows to the U.S. in the past few years, and thus a strengthening of the dollar. As measured by the CurrencyShares Euro ETF (FXE | A-98), the euro has slid against the dollar by more than 7 percent this year and by about 20 percent in the past year. ETFs like WisdomTree's HEDJ protect U.S. investors from that currency cross.
|February 2015 Flows By Asset Class||Net Flows ($, M)||AUM ($, M)||% of AUM|
|U.S. Fixed Income||13,344.95||307,114.21||4.35%|
|International Fixed Income||673.88||24,796.50||2.72%|
Top Gainers February 2015
|Ticker||Fund||Issuer||Flows||AUM ($, M)||Turnover|
|HEDJ||WisdomTree Europe Hedged Equity||WisdomTree||2,432.42||12,131.62||5,591.16|
|HYG||iShares iBoxx $ High Yield Corporate Bond||BlackRock||2,374.11||17,934.10||10,864.65|
|SHV||iShares Short Treasury Bond||BlackRock||2,028.82||5,435.82||4,529.26|
|SPY||SPDR S&P 500||SSgA||1,800.40||194,078.92||414,061.86|
|LQD||iShares iBoxx $ Investment Grade Corporate Bond||BlackRock||1,710.12||21,978.49||6,358.90|
|DBEF||Deutsche X-trackers MSCI EAFE Hedged Equity ETF||Deutsche Bank||1,515.49||4,752.97||2,234.49|
|IEFA||iShares Core MSCI EAFE||BlackRock||1,499.04||5,135.51||2,264.55|
|VTI||Vanguard Total Stock Market||Vanguard||1,332.67||55,112.29||6,089.96|
|JNK||SPDR Barclays High Yield Bond||SSgA||1,236.69||11,753.27||4,732.53|
|HEFA||iShares Currency Hedged MSCI EAFE||BlackRock||981.67||1,303.55||1,110.10|