Painful Quarter Doesn't Stop ETF Inflows

October 01, 2015

Investors poured nearly $44 billion into U.S.-listed ETFs in the third quarter, about half of which landed in U.S. equity funds. The inflows into some of the biggest U.S. stock ETFs came despite the fact that the third quarter was the worst quarter for U.S. stock markets in roughly four years.

The S&P 500 slipped 7 percent in the three-month period ended Sept. 30, and at one point in August, the plunge neared a 10 percent decline as investors took risk off the table amid fears of a global economic slowdown.

The Federal Reserve’s decision to keep rates unchanged in September, citing concerns about the global economy for the first time, was another indication that things aren’t looking as strong as some had expected and that the period of ultra-low rates might linger a bit longer.

Still, funds like the SPDR S&P 500 (SPY | A-99) and the Vanguard S&P 500 (VOO | A-99) topped the list of ETF creations, with inflows of $9.8 billion and $4.7 billion, respectively, in the quarter.

US Fixed-Income Gains

What was also evident in the flows data was that demand for the perceived safety of Treasurys saw a major pickup. Five out of the 10 most popular ETFs in the quarter were Treasury funds offering exposure to anywhere from 1-month T-bills to 10-year Treasury bonds, as the table below shows. The demand came as 10-year Treasury yields dropped 12 percent, or 28 basis points, to 2.06 percent at the end of the quarter.

As an asset class, U.S. fixed-income ETFs gathered nearly $22 billion in fresh net assets—ending the quarter with roughly a 7 percent increase from total assets at the end of June.

Emerging Markets Still Bleeding

If global jitters had investors looking for cover, it certainly had them trimming their allocation to emerging markets. There are some starting to call for a bottom in these commodity-rich economies, but ETF investors have yet to return to the asset class in earnest.

In fact, the biggest redemptions in the third quarter were seen in emerging market ETFs. Both the Vanguard FTSE Emerging Markets (VWO | C-89) and the iShares MSCI Emerging Markets (EEM | B-100) were found among the least popular ETFs in the quarter, with combined outflows of more than $6.5 billion.

In all, third-quarter asset flows put year-to-date ETF creations at about $145 billion. That’s roughly $100 billion short of 2014’s record asset growth of $243 billion.

Q3 2015 Top Gainers

Ticker Fund Issuer Flows AUM ($, M) Turnover
SPY SPDR S&P 500 SSgA 9,792.12 168,304.28 1,961,173.59
VOO Vanguard S&P 500 Vanguard 4,731.30 34,596.35 31,870.18
SHY iShares 1-3 Year Treasury Bond BlackRock 4,295.22 13,351.03 13,009.61
IEF iShares 7-10 Year Treasury Bond BlackRock 2,530.64 8,932.94 12,655.21
DBEF Deutsche X-trackers MSCI EAFE Hedged Equity ETF Deutsche Bank 2,389.20 13,168.45 9,018.90
SHV iShares Short Treasury Bond BlackRock 1,940.51 4,014.96 6,914.64
EZU iShares MSCI EMU BlackRock 1,824.52 10,796.14 18,433.57
BIL SPDR Barclays 1-3 Month T-Bill SSgA 1,663.40 3,066.12 3,922.95
VGK Vanguard FTSE Europe Vanguard 1,572.30 14,379.38 19,070.13
TLT iShares 20+ Year Treasury Bond BlackRock 1,547.22 6,406.08 73,047.28

Q3 2015 Biggest Losers

Ticker Fund Issuer Flows AUM ($, M) Turnover
VWO Vanguard FTSE Emerging Markets Vanguard -3,622.54 34,875.52 47,939.29
EEM iShares MSCI Emerging Markets BlackRock -2,905.53 21,279.20 150,491.43
RSP Guggenheim S&P 500 Equal Weight Guggenheim -1,191.02 9,023.14 6,202.46
XLK Technology Select SPDR SSgA -1,147.21 11,388.18 30,042.03
EFA iShares MSCI EAFE BlackRock -1,132.79 53,647.81 92,570.80
AAXJ iShares MSCI All Country Asia ex Japan BlackRock -1,070.73 2,535.83 6,293.24
VXX iPath S&P 500 VIX Short-Term Futures ETN Barclays Capital -1,046.31 667.25 111,132.71
GLD SPDR Gold SSgA -805.74 24,612.16 46,429.90
TZA Direxion Daily Small Cap Bear 3x Direxion -764.51 127.47 10,753.51
XLV Health Care Select SPDR SSgA -735.37 12,853.00 62,874.54

Q3 2015 Asset Class

Net Flows ($, M) AUM ($, M) % of AUM
U.S. Equity 19,532.68 1,081,602.01 1.81%
International Equity -1,014.06 454,499.99 -0.22%
U.S. Fixed Income 21,924.47 319,974.96 6.85%
International Fixed Income 652.90 26,286.39 2.48%
Commodities -620.56 49,967.17 -1.24%
Currency -102.31 1,309.26 -7.81%
Leveraged 3,549.45 21,250.93 16.70%
Inverse 1,078.97 20,748.57 5.20%
Asset Allocation -57.85 5,352.23 -1.08%
Alternatives -1,097.06 3,008.00 -36.47%
Total: 43,846.63 1,983,999.51 2.21%

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