March ETF Flows: S&P 500 Funds Shine

Investors poured money into the biggest and most liquid S'P 500 ETFs funds last month, a reflection of the guarded optimism that coursed its way through financial markets in the first quarter. Overall, March inflows were $13.12 billion and, including market movements, total assets rose to over $1.210 trillion—just shy of 1 percent higher on the month and 12 percent above March 2011 .

The SPDR S'P 500 ETF (NYSEArca:SPY - News) was last month's most popular fund, pulling $3.23 billion and lifting total assets in the world's biggest ETF to $105.62 billion. The iShares S'P 500 Index Fund (NYSEArca:IVV - News) and the Vanguard S'P 500 ETF (NYSEArca:VOO - News) meanwhile added $697.4 million and $578.9 million, respectively, according to data compiled by IndexUniverse.

The Vanguard Emerging Markets ETF (NYSEArca:VWO - News) pulled in $734.6 million last month and was the most popular fund in the first quarter, adding $6.44 billion in new assets, making Vanguard the leading ETF sponsor in both March and in the entire quarter. But investors weren't unequivocally embracing the developing world, as outflows from funds focused on Brazil and China clearly showed.

The inflows last month and in the first quarter were all part of incipient signs that investors may be starting to believe the world economy is putting the worst behind it following the debt-related problems that caused the market meltdown in 2008 and fueled the eurozone's crisis in the few years following.

Investors plowed almost $56 billion into ETFs in the first quarter, and including the S'P 500 Index's 12 percent gains in the first three months of 2012, ETF assets have risen 14 percent this year from $1.062 trillion at the end of 2011.

Another pocket of the investment universe that garnered attention was junk bonds, with the ETF market's two biggest funds making it onto IndexUniverse's "Top Gainers" list in the first quarter.

The iShares iBoxx $ High Yield Corporate Bond Fund (NYSEArca:HYG - News) and the SPDR Barclays Capital High Yield Bond Fund (NYSEArca:JNK - News) together added more than $6 billion in new assets in the first three months of the year, in another sign investors are warming to riskier assets.

Vanguard Rising—Still

Vanguard, as it has for the past few years, pulled in more assets than any other ETF sponsor in March and in the whole first quarter, as investors continue to be drawn in by the low prices on its lineup of pure data funds.

The Valley Forge, Pa.-based company gathered $4.75 billion in March, ending the quarter with $204.84 billion. State Street Global Advisors, the No. 2 U.S. ETF sponsor, added $3.40 billion last month, and had $299.22 billion in assets.

iShares, the BlackRock unit, actually suffered outflows of $183.7 million in March, a function of some high-profiled redemptions of some of its bigger funds, including VWO's rival, the iShares MSCI Emerging Markets Index Fund (NYSEArca:EEM - News). VWO ended the quarter with $54.24 billion, while EEM had $39.67 billion.

In the whole first quarter, Vanguard gathered more than $17 billion, compared with almost $12.5 billion for iShares, and $8.59 billion for SSgA. iShares, the world's biggest ETF company, ended the quarter with about $500 billion.

Emerging Markets:A Mixed Bag

EEM had redemptions of $37.2 million last month, as our "ETF Giants" table for March shows, but still managed to pull in $2.69 billion in the whole first quarter.

Besides EEM, two other iShares funds focused on the emerging markets saw outflows in March and in the first quarter.

Investors pulled $688.2 million out of the iShares MSCI Brazil Index Fund (NYSEArca:EWZ - News) last month and $1.35 billion in the first quarter, amid concern that the South American country's currency, the real, risked gaining so much strength on international currency markets as to jeopardize exports.

Additionally, the iShares FTSE China 25 Index Fund (NYSEArca:FXI - News) suffered outflows of $308.3 million last month amid ongoing concern about slowing Chinese growth that risks rippling around the planet.

Also among the conspicuous iShares redemptions last month was the $1.21 billion that flowed out of the iShares MSCI EAFE Index Fund (NYSEArca:EFA - News).

In the entire first quarter, EFA was the least popular ETF, suffering outflows of more than $2.4 billion, a sign that some investors aren't yet fully buying into the view that the worst of Europe's debt crisis is fading into the rearview mirror.

Related doubts about the global economy were evident in inflows into the market's most popular exchange-traded product designed around CBOE Volatility, or VIX futures.

Some traders appear to be harboring suspicions that financial markets are too calm for their own good, and are poised for a bit of bumpiness ahead.

To that extent, the iPath S'P 500 VIX Short-Term Futures ETN (NYSEArca:VXX - News) added $872.6 million in March and just over $2 billion in the whole first quarter. VXX had assets of $1.8 billion as of March 30.

The VIX-related ETF market has been the subject of a fair amount of controversy surrounding volatile trade in the VelocityShares Daily 2X VIX Short Term ETN (NYSEArca:TVIX - News) in the past several weeks.

In any case, whenever assets of a given investment are less than inflows, as was the case for VXX in the first quarter, it's a sign that returns have been dismal. Moreover, as long as volatility remains at bay, VXX is likely to remain a poor performer because it's designed to spike when markets tank.

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