Feb. Flows Show 3 Clear ETF Trends

March 01, 2016

A look at February’s top ETF inflows show three clear trends taking place in the ETF market.

First, there was aversion to risk in the form of demand for safe-haven assets such as gold, long-dated Treasurys and utilities.

Investors poured nearly $9 billion into U.S. fixed-income strategies—a lot of which landed into funds such as the iShares 20+ Year Treasury Bond (TLT | A-83), the iShares 3-7 Year Treasury Bond (IEI | A-73) and the iShares Core U.S. Aggregate Bond (AGG | A-98).

Commodity ETFs—which have been battered and shunned for the last two years—raked in an impressive $4.8 billion in one month. But just about all of those assets found their way into gold funds such as the SPDR Gold Trust (GLD | A-100) and the iShares Gold Trust (IAU | B-100)—a safe-haven play.

Min Vol & Utility Funds Popular

And then there was demand for a popular minimum-volatility strategy, the iShares MSCI USA Minimum Volatility (USMV | A-79), as well as for a utilities fund, the First Trust Utilities AlphaDex (FXU | B-87). These are all defensive-type choices pointing to strong risk aversion among investors.

Meanwhile, equity funds as a group saw $12 billion in outflows redemptions last month. In total, February saw net inflows of $2.7 billion, to end the month with total U.S.-listed assets of $2.033 trillion.

“Investors favored risk-off trades,” S&P Capital IQ’s Todd Rosenbluth said. “However, midmonth, as signs of economic growth returned, some investors returned to high yield.”

It was that midmonth switch in the appetite for risk that brings us to our second theme: Demand for junk bonds seems to be alive and well, all of a sudden.

Investors Return To Junk Bond ETFs

The beaten-down iShares iBoxx USD High Yield Bond Corporate ETF (HYG | B-68) slipped more than 5% in 2016 by midmonth, bringing losses to nearly 12% in 12 months, but found a footing halfway through the month, and ended February with nearly $1 billion in fresh net inflows.

As economic indicators pointed to growth; as risk of higher default rates tied to energy had already been priced in; and as prices started to look attractive given the months-long sell-off in the segment, HYG went on to rally 5.2% in two weeks through Feb. 29.

Finally, there’s the interesting presence of the Vanguard Total Stock Market (VTI | A-100) among top gainers in a month when no one seemed particularly eager to buy stock funds. VTI took in nearly $800 million in net creations, and according to Rosenbluth, the story here is one about the ETF wrapper itself.

“Vanguard's low-cost, well-diversified products such as VTI continue to experience inflows as ETF adoption toward low-cost broad products continues,” Rosenbluth said. VTI offers broad exposure to the investable U.S. equity market for only 5 basis points (0.05%).

On the flip side, investors trimmed exposure to international equities more than any other asset, as talk of a global recession dominated headlines last month.

The asset class bled more than $7 billion, with funds tapping into Japan, eurozone and emerging markets all finding their way among the month’s biggest redemptions. The outflows impacted currency hedged and unhedged funds alike.

Top Gainers

Ticker Fund Issuer Net Flows ($M) AUM ($M) % of AUM YTD Net Flows ($M)
GLD SPDR Gold SSgA 3,593.75 30,851.43 11.65% 0.17
USMV iShares MSCI USA Minimum Volatility BlackRock 1,786.68 9,709.11 18.40% 0.00
TLT iShares 20+ Year Treasury Bond BlackRock 1,215.74 9,729.29 12.50% 0.09
FXU First Trust Utilities AlphaDEX First Trust 1,104.97 1,319.07 83.77% 0.06
LQD iShares iBoxx $ Investment Grade Corporate Bond BlackRock 1,083.12 24,991.96 4.33% 0.01
HYG iShares iBoxx $ High Yield Corporate Bond BlackRock 946.25 15,266.30 6.20% 0.00
IEI iShares 3-7 Year Treasury Bond BlackRock 917.86 6,765.35 13.57% 0.03
AGG iShares Core U.S. Aggregate Bond BlackRock 908.82 32,878.11 2.76% 0.02
IAU iShares Gold Trust BlackRock 868.70 7,522.12 11.55% 0.17
VTI Vanguard Total Stock Market Vanguard 799.35 54,378.21 1.47% -0.06

Biggest Losers

Ticker Fund Issuer Net Flows ($M) AUM ($M) % of AUM YTD Net Flows ($M)
SPY SPDR S&P 500 SSgA -2,249.43 170,844.75 -1.32% -0.05
QQQ PowerShares QQQ Invesco PowerShares -1,536.23 36,227.72 -4.24% -0.08
IWM iShares Russell 2000 BlackRock -1,520.10 22,878.98 -6.64% -0.09
FBT First Trust NYSE Arca Biotechnology First Trust -1,290.38 888.00 -145.31% -0.26
DXJ WisdomTree Japan Hedged Equity WisdomTree -1,212.00 10,165.72 -11.92% -0.17
XLF Financial Select SPDR SSgA -1,023.73 15,338.68 -6.67% -0.11
EZU iShares MSCI Eurozone BlackRock -850.19 12,609.60 -6.74% -0.09
EWJ iShares MSCI Japan BlackRock -755.18 17,499.62 -4.32% -0.10
IJH iShares Core S&P Mid-Cap BlackRock -717.65 24,247.88 -2.96% -0.04
VWO Vanguard FTSE Emerging Markets Vanguard -639.28 30,922.64 -2.07% -0.06

Asset Class Data (February 2016)

Net Flows ($M) AUM ($M) % of AUM
U.S. Equity -5,067.11 1,104,422.60 -0.46%
International Equity -7,198.57 437,368.33 -1.65%
U.S. Fixed Income 8,996.04 354,338.12 2.54%
International Fixed Income 157.25 29,411.86 0.53%
Commodities 4,898.85 57,320.50 8.55%
Currency -62.25 1,339.20 -4.65%
Leveraged -301.15 21,410.73 -1.41%
Inverse 1,363.27 19,323.97 7.05%
Asset Allocation -42.32 5,205.21 -0.81%
Alternatives -8.89 3,049.33 -0.29%
Total: 2,735.13 2,033,189.85 0.13%

Asset Class Data (February 2016 YTD)

Net Flows ($M) AUM ($M) % of AUM
U.S. Equity -31.26 1,104,422.60 0.00%
International Equity -35.91 437,368.33 -0.01%
U.S. Fixed Income 1.81 354,338.12 0.00%
International Fixed Income 0.18 29,411.86 0.00%
Commodities -3.17 57,320.50 -0.01%
Currency -0.03 1,339.20 0.00%
Leveraged -11.94 21,410.73 -0.06%
Inverse 7.34 19,323.97 0.04%
Asset Allocation -0.89 5,205.21 -0.02%
Alternatives 1.05 3,049.33 0.03%
Total: -72.83 2,033,189.85 0.00%

All data courtesy of FactSet

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