Int’l Equity ETFs Led May 2015 Flows

June 01, 2015

Investors poured almost $12 billion into U.S.-listed ETFs in May, almost all of it international equity strategies, as 2015’s mega theme of flows away from U.S. stocks continued to rear its head. Overall, total assets in U.S.-listed ETFs rose nearly 1 percent in May to $2.153 trillion, according to data compiled by ETF.com.

Year-to-date asset gathering now totals $84 billion, well ahead of the $48.5 billion at the end of the same year-earlier period. Moreover, considering that second-half ETF flows have historically been considerably more powerful than in the first half, it looks likely that last year’s record inflows of $243 billion is likely to be topped by the end of 2015.

May flows tell the tale of an ETF industry in which investors are reallocating assets out of the U.S. following the powerful rally since the March 9, 2009 market bottom. Instead, they are putting many of those assets instead into places like Japan and especially Europe, where quantitative easing by the Bank of Japan and the European Central Bank has stoked an appetite for riskier assets such as stocks.

A more nuanced trend within the trend favoring international strategies is that the decision to hedge currency exposure seems to be shifting. It’s no longer the no-brainer of the past two years that lifted funds like the now $20 billion WisdomTree Europe Hedged Equity Fund (HEDJ | B-49) to blockbuster status. The idea of hedging currency exposure seems to now be a more iffy proposition.

Asset Class Net Flows ($M) AUM ($M) % of AUM
U.S. Equity -77.40 1,172,477.07 -0.01%
International Equity 12,753.05 536,899.68 2.38%
U.S. Fixed Income -1,370.47 305,903.70 -0.45%
International Fixed Income 1,029.99 26,395.75 3.90%
Commodities -1,086.05 56,853.03 -1.91%
Currency 47.15 1,454.43 3.24%
Leveraged -330.30 25,229.01 -1.31%
Inverse 818.53 18,806.35 4.35%
Asset Allocation 115.18 6,029.10 1.91%
Alternatives 74.17 3,559.59 2.08%
Total: 11,973.86 2,153,607.71 0.56%

Into Stocks And Out Of Bonds

At the bottom of the list of the Top 10 ETFs by inflows last month was the Deutsche X-trackers MSCI EAFE Hedged Equity ETF (DBEF | B-67). But at the top was perched an unhedged version of the same portfolio, the iShares MSCI EAFE ETF (EFA | A-93). That’s an elegant symmetry that stands as a metaphor for a dollar rally that’s still going, but has been losing some of its momentum in the past several weeks.

Both of those funds were, of course, part of the powerful ongoing inflows into international equities, which garnered $12.75 billion in total inflows. U.S. equities, meanwhile, had net outflows of about $77 million.

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