Currency Hedged ETFs Won Big In Feb Flows

March 02, 2015

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. Equity 4,232.61 1,180,926.29 0.36%
International Equity 14,198.55 467,784.40 3.04%
U.S. Fixed Income 13,344.95 307,114.21 4.35%
International Fixed Income 673.88 24,796.50 2.72%
Commodities 994.22 60,007.41 1.66%
Currency -72.78 1,302.45 -5.59%
Leveraged -156.30 25,823.80 -0.61%
Inverse 156.31 16,944.44 0.92%
Asset Allocation 407.62 5,782.18 7.05%
Alternatives 501.28 3,329.61 15.06%
Total: 34,280.33 2,093,811.29 1.64%


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
BlackRock 13,936.42 800,651.32 1.74% 369,149.33
Vanguard 4,988.29 454,815.76 1.10% 73,250.62
SSgA 3,400.52 441,061.63 0.77% 623,252.86
Invesco PowerShares 1,751.42 99,290.17 1.76% 63,716.97
WisdomTree 2,936.81 49,020.68 5.99% 14,557.52
First Trust 1,147.46 36,853.69 3.11% 9,526.73
Guggenheim 375.68 30,082.55 1.25% 7,001.47
Charles Schwab 366.81 29,756.94 1.23% 4,243.56
ProShares 0.09 25,192.65 0.00% 63,407.38
Van Eck 545.81 23,879.98 2.29% 40,216.50
PIMCO 352.18 11,905.28 2.96% 3,310.79
ALPS 295.75 11,778.95 2.51% 2,043.02
Deutsche Bank 2,034.81 9,432.36 21.57% 4,372.91
Barclays Capital 587.43 9,080.01 6.47% 27,828.00
Northern Trust 177.18 8,745.63 2.03% 715.48
Direxion -256.93 8,654.14 -2.97% 41,881.80
JPMorgan 25.51 5,678.43 0.45% 1,067.31
UBS 148.31 5,604.26 2.65% 996.42
US Commodity Funds 330.03 4,205.93 7.85% 18,317.85
Global X 130.54 3,917.26 3.33% 994.24
Fidelity 60.08 2,997.97 2.00% 1,079.05
VelocityShares 256.05 2,850.11 8.98% 21,954.97
ETF Securities -3.72 2,464.36 -0.15% 256.49
Exchange Traded Concepts 74.40 2,412.16 3.08% 218.18
Credit Suisse 42.59 1,874.96 2.27% 155.07
Emerging Global Shares 12.78 1,677.82 0.76% 260.69
AdvisorShares 62.56 1,350.47 4.63% 258.69
IndexIQ -52.38 1,335.30 -3.92% 225.72
RevenueShares 38.19 1,048.27 3.64% 106.55
Merrill Lynch 0.64 827.52 0.08% 136.28
RBS Securities 23.83 798.35 2.99% 104.60
Factor Advisor 217.85 440.07 49.50% 411.21
Cambria 36.06 419.14 8.60% 82.07
Highland Capital Management - 318.00 0.00% 30.71
GreenHaven 1.50 259.35 0.58% 42.64
CitiGroup 51.30 237.84 21.57% 16.07
KraneShares -7.99 233.88 -3.42% 88.14
Arrow Investment Advisors 37.00 198.52 18.64% 58.31
Goldman Sachs - 164.85 0.00% 59.35
Teucrium -2.19 122.57 -1.79% 58.62
Morgan Stanley - 105.02 0.00% 7.03
Precidian - 93.18 0.00% 63.65
Horizons 20.65 83.41 24.76% 25.07
Columbia - 36.15 0.00% 3.61
Huntington Strategy Shares -2.88 16.22 -17.73% 8.31
LocalShares - 11.36 0.00% 0.15
FFCM - 10.27 0.00% 12.04
Jefferies - - - -
Pax World - - - -
Russell - - - -

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