Pace Of ETF Flows Tapers In July

Cinthia Murphy

Headed into the final days of July, it’s becoming clear that asset flows into U.S.-listed ETFs this month will be a far cry from the $25 billion in net creations seen in June. The sluggish pace in money flows is probably indicative of unusually low volatility levels.

So far this month, investors have poured about $7 billion into ETFs, with just over $1 in every $10 landing into U.S. equity funds, according to data provided by Nick Colas, of ConvergEx Group. That pace, he argues, doesn’t jive with the “$150-billion-in-net-assets-a-year business” the ETF market should be, but isn’t all that surprising in the current environment.

Low Volatility Key Factor

“Low volatility breeds complacency,” Colas told of the lackluster investor interest for ETFs. “This has been a low period for the VIX, and as traders say, when there’s nothing to do, don’t do anything.”

The Chicago Board Options Exchange SPX Volatility Index, known as the VIX index, has slipped 8.45 percent year-to-date, hitting historically low levels as it went down, according to Bloomberg data. In fact, the so-called fear gauge dropped to its lowest levels since 2007 earlier this year, just to rebound slightly in recent days amid brewing geopolitical concerns centered on Russia and Israel.

Still, Colas argues that this type of a slowdown in flows midway through the year “feels pretty normal.” From a seasonal perspective, ETFs benefit the most in the fourth quarter when investors do tax-harvesting, and buy similar exposure in ETF wrappers to replace fund allocations for tax purposes.

ETFs also tend to do well in the first quarter when a new year brings new money into the fold.

July’s flows pace puts year-to-date net ETF creations at about $80 billion—less than half the $188 billion in asset inflows seen in the entire 2013.

Most Popular Equity Funds

Some of the most popular U.S. equities funds so far this month include large-cap ETFs such as the iShares Core S&P 500 (IVV | A-98) and the Vanguard S&P 500 (VOO | A-96), each gathering $740 million and $601 million, respectively, month-to-date.

The PowerShares S&P 500 Low Volatility ETF (SPLV | A-44)—a fund designed for risk-averse investors, as it invests in the 100 S&P 500 stocks with the least volatility over the past year—raked in more than $538 million in the period.

On the flip side, small-cap U.S. equities fund iShares Russell 2000 (IWM | A-78) bled another $1.5 billion in assets so far this month. Year-to-date, the fund has now faced net outflows nearing $3 billion as investors trim exposure to small-cap stocks.

IWM’s outflows have come hand-in-hand with net losses of 0.8 percent so far this year. By comparison, IVV has delivered total returns of 8.1 percent, and SPLV has rallied 7.4 percent, as the chart below shows.


Chart courtesy of


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