Jan. ETF Flows: VWO Stars In Risk-On Show

Investors started 2012 by taking on risk in emerging markets and in junk bonds, making last year’s most popular ETF , VWO, the biggest asset gatherer in the first month of the year.

Overall, U.S.-listed ETFs attracted almost $29 billion, the most since September 2010 when almost $28 billion flowed in. Total assets, including market moves, rose 8.3 percent to over $1.150 trillion., according to data compiled by IndexUniverse.

The Vanguard MSCI Emerging Markets ETF (NYSEArca:VWO - News) pulled in $3.25 billion in fresh assets last month, and including a powerful rebound in developing market stock prices, VWO’s total assets climbed more than 19 percent to nearly $50 billion. Its rival, the iShares MSCI Emerging Markets Index Fund (NYSEArca:EEM - News), gathered $1.28 billion, and its assets rose more than 15 percent to $37.43 billion.

The renewed appetite for risk extended to the U.S.-listed ETF market’s two-biggest junk bond funds as well. The iShares iBoxx $ High Yield Corporate Bond Fund (NYSEArca:HYG - News) and the SPDR Barclays Capital High Yield Bond ETF (NYSEArca:JNK - News) attracted $2.25 billion and $1.44 billion, respectively.

While a solution to Europe’s sovereign debt crisis is hardly at hand, investor behavior in January suggested an underlying optimism that 2012 won’t be as messy as 2011. That sentiment was expressed in the strong flows to emerging markets and junk bonds, which are historically considered among the riskier assets. Also, rising popularity of high-yield debt has in the past often preceded economic recovery.

From a fund sponsor perspective, VWO’s place at the pinnacle of our “Top Gainers” table didn’t translate into Valley Forge, Pa.-based Vanguard raking in more assets than any other ETF company. That honor went to BlackRock, the parent of San Francisco-based iShares, the world’s biggest ETF company.

BlackRock Tops League Table

BlackRock gathered $9.54 billion in January, securing its place at the top of the league table, with $483.56 billion in total assets.

Vanguard, the No. 3 U.S. ETF firm by assets, followed BlackRock, with $6.90 billion in inflows, lifting its total assets to $187.28 billion. State Street Global Advisors, the No. 2 U.S. ETF firm, added $5.73 billion last month, bringing its total assets under management to $287.60 billion.

Invesco PowerShares meanwhile pulled in $3.56 billion in assets, most of that being $3.23 billion of new investment into its $31 billion Nasdaq 100 ETF, the PowerShares QQQ Trust (NasdaqGM:QQQ - News).

PowerShares ended January with almost $65 billion in assets, though about a quarter of that sum is said to come from its partnership with Deutsche Bank involving “PowerShares DB” ETFs and ETNs that it markets for Deutsche. But even without those assets, it’s still the No. 4 U.S. ETF firm by assets.

Currencies And Leveraged Funds Left Behind

All major asset classes had inflows last month, save for currency and leveraged funds, as our “Flows By Asset Class and Total Flows” table shows. Currency funds bled more than $150 million, while leveraged funds ended the month with net redemptions of $1.25 billion, or almost 10 percent of the assets in that class.

U.S. equities led all asset classes in gathering money, with $13.2 billion in new investment. International equities pulled in $6.54 billion.

Fixed income added almost $8 billion in new money, with $7.55 billion of that going into in U.S. bond funds.

Strong fixed-income inflows notwithstanding, the presence of two Treasury bond funds on IndexUniverse’s “Biggest Losers” table suggested the flip side of the risk-on trade reflected in heavy flows into emerging markets and junk bonds—namely an exit from the “risk-free” assets.

For example, the SPDR Barclays Capital 1-3 Month T-Bill ETF (NYSEArca:BIL - News) and the iShares Barclays 3-7 Year Treasury Bond Fund (NYSEArca:IEI - News). BIL had redemptions of almost $500 million, while IEI had outflows of $341.3 million.

Last month’s least popular fund was SSgA’s Consumer Staples Select Sector SPDR Fund (NYSEArca:XLP - News), which had outflows of $992.2 million. That left the ETF with $4.77 billion in assets.

The most heavily traded fund by far remained SPY, the SPDR S'P 500 ETF (NYSEArca:SPY - News). It had total turnover of $410.75 billion, or more than five times as much as the No. 2 fund on our “Liquidity Mavens” table, the iShares Russell 2000 Index Fund (NYSEArca:IWM - News).

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