Three Most Popular ETFs of February

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Thanks to improving global sentiment and growing investor confidence, 2013 has been a good year so far for both the equity markets and the ETF industry. Fund inflows have been strong and a host of new products have hit the market over the past few weeks.

In fact, in February alone, ETFs saw inflows over $8 billion (read: Best and Worst Performing ETFs of February). With this, total AUM reached the $1.426 trillion mark, which is shy of the all-time record of $1.437 trillion, but 19% higher than $1.201 trillion reported in the year-ago period.

Despite the significant volatility in the month, the equity funds experienced the heaviest inflows followed by fixed income funds. Investors should note that commodities lost over $3.8 billion in assets due in large part to the terrible performance by gold and gold ETFs (read: Have We Seen the Bottom in Gold ETFs?).

Below, we have discussed the three ETFs that were extremely popular in February. These funds not only attracted many investors, but also performed better than the broad market index funds, and could be poised for further gains in March.

WisdomTree Japan Hedged Equity Fund (DXJ)

This is the most popular ETF of February, having gathered over $1.7 billion in the time frame. This is largely thanks to the concerns over a declining yen, helping to propel the fund’s asset base to nearly $4.3 billion.

This ETF seeks to match the price and yield of the WisdomTree Japan Hedged Equity Index, before fees and expenses. At the same time, the fund also provides a hedge against a drop in the currency against the U.S. dollar, a reason why the ETF experienced a huge inflow (read: Japan ETFs: Six Ways to Play the Surge).

The product offers a broader play on the Japanese equity market providing exposure to 274 stocks. Mitsubishi UFJ Financial (MTU), Takeda Pharmaceutical (TKPYY) and Canon (CAJ) occupy the top three positions in the fund’s basket.

From a sector perspective, the fund is heavy on industrials with roughly 23.47% share, closely followed by consumer discretionary and information technology with 18.75% and 15.83% of the assets, respectively.

DXJ has been the one of the performing ETFs in the Japanese space, gaining 13% so far in the year. In fact, the fund has outpaced the broad market fund, SPY, by a wide margin of 620 bps. The fund charges a fee of 48 basis points on an annual basis.

The ETF has a Zacks ETF Rank #3 or ‘Hold’ rating.

iShares Russell 2000 Index Fund (IWM)

The second winner in the ETF space is this small cap focused iShares product, which is designed to deliver the returns of the U.S. small cap segment (read: Try Small Cap ETFs to Gain from Chinese Domestic Demand). The product pulled in about $1.1 billion in February, accumulating over $19.2 billion in its asset base while charging 25 bps in fees per year.

Holding 1967 securities in the basket, the fund tracks the Russell 2000 Index, which is a capitalization weighted 2,000-stock subset of the Russell 3000 Index. The product eliminates specific company risks as it puts too little assets in each security.

Pharmacyclics (PCYC), Ocwen Financial (:OCL) and Genesee & Wyoming (GWR) are the top three elements in the basket. None of the individual securities holds more than 0.3% share of the total, suggesting extreme diversification.

However, the product is tilted towards financial services and consumer discretionary sectors, which together make up for 38% of the total assets. IWM generated solid returns of about 7.8% YTD, outperforming SPY by 100 bps.

 The ETF also pays an annual dividend of 1.86%, which isn’t too bad considering the growth focus of the fund (read: Forget SPY, Focus on Mid and Small Cap ETFs).

IWM has a Zacks ETF Rank #3 or ‘Hold’ rating with low risk tolerance level.

iShares Dow Jones U.S. Real Estate ETF (IYR)

This was another successful product in February, attracting $846 million in new capital. The ETF targets the real estate space by tracking the Dow Jones U.S. Real Estate Index and has amassed $5.4 billion in AUM so far.

The product manages a basket of 89 real estate companies with 40.5% of the asset base invested in the top 10 holdings. Simon Property (SPG) takes the top spot in the basket with 8.71% share. Beyond this, American Tower (AMT) and HCP Inc. (HCP) occupy the next two positions with combined 9.4% of IYR (see more ETFs in the Zacks ETF Center).

With respect to the sector, specialty and retail REITS collectively take 50% of the assets in the basket. Investors have to pay 46 bps in annual fees for this exposure. IYR returned over 5% so far this year and yields a good annual dividend of 3.52%.

We can summarize the three funds in the following table:

 

Funds

Category

Net Flows ($ in millions)

AUM ($ in millions)

Expense Ratio

YTD Returns (as of March 1, 2013)

DXJ

Japan Equities

1,734.80

4,311.90

0.48%

12.99%

IWM

Small Cap Blend

1,072.23

19,217.10

0.25%

7.79%

IYR

Real Estate

846.07

5,425.20

0.46%

5.54%

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