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|
Junk Back In Favor
As noted, HYG was No. 2 on the February inflows list, with creations totaling almost $2.4 billion. Total assets in the fund reached almost $18 billion.
Additionally, the SPDR Barclays High Yield Bond ETF (JNK | B-68), the ETF market's second-biggest junk bond fund, gathered almost $1.25 billion in fresh assets, lifting total assets in the fund to about $11.75 billion.
As noted above, the high-yield market finished 2014 heavily out of favor, in part because of concerns oil drillers taking part in the fracking revolution had issued high-yield debt to ramp up output. The problem was that all the extra oil on the market began to hit prices, in turn affecting the capacity of such firms to service their debt.
But investors in full command of just what the diversity of indexes underlying broad funds like HYG and JNK means, understood that problems in the oil patch were at most a peripheral concern to such funds. Moreover, in the worst-case scenario, were a given fracking firm's credits to default, they would quickly be kicked out of a broad bond index.
In that light, value-hunters who bought beaten-down shares of HYG or JNK last month probably made shrewd moves.
February 2015 Biggest Losers
|Ticker||Fund||Issuer||Flows||AUM ($, M)||Turnover|
|IYW||iShares U.S. Technology||BlackRock||-1,562.95||3,082.21||2,286.82|
|IWM||iShares Russell 2000||BlackRock||-1,142.82||28,176.54||63,776.82|
|IYR||iShares U.S. Real Estate||BlackRock||-939.38||5,437.44||18,731.46|
|VEA||Vanguard FTSE Developed Markets||Vanguard||-730.20||25,356.40||5,280.08|
|IYF||iShares U.S. Financials||BlackRock||-661.67||1,331.45||1,196.55|
|VIG||Vanguard Dividend Appreciation||Vanguard||-577.66||21,176.17||1,777.70|
|FXU||First Trust Utilities AlphaDEX||First Trust||-491.88||307.73||632.12|
|FXL||First Trust Technology AlphaDEX||First Trust||-467.94||678.14||654.36|
|IVV||iShares Core S&P 500||BlackRock||-466.21||70,378.78||16,457.48|
|XLK||Technology Select SPDR||SSgA||-458.99||13,260.53||5,383.01|
February 2015 League Table
|Issuer||Net Flows||AUM ($M)||% of AUM||Turnover|
|US Commodity Funds||330.03||4,205.93||7.85%||18,317.85|
|Exchange Traded Concepts||74.40||2,412.16||3.08%||218.18|
|Emerging Global Shares||12.78||1,677.82||0.76%||260.69|
|Highland Capital Management||-||318.00||0.00%||30.71|
|Arrow Investment Advisors||37.00||198.52||18.64%||58.31|
|Huntington Strategy Shares||-2.88||16.22||-17.73%||8.31|