As we progress into the second half of 2014, it is worthwhile to look at how the ETF industry performed in the first half of the year. Going by etf.com, the industry hauled in about $70 billion, but total asset creation fell from the year-ago level. About $73 billion worth assets were created in 1H13.
The latest data indicate that the economy and the ETF industry will have to try hard to match last year’s momentum. Notably, the year 2013 set a record-target of $188.54 billion asset creation. Total market for U.S.-listed ETFs was $1.812 trillion—6.5% higher than 2013 end and 26% higher than 1H13 end (read: 5 ETFs Up At Least 10% in the First Half of 2014).
The top-and-bottom five asset generators/losers in the first half of 2014 are given below. Developed markets were the star performers in terms of asset gathering with these five ETFs seeing maximum inflows:
Top Gainers in 1H14 ($, Million)
|Ticker||ETF||1H14 Net Flows||AUM ($, Million)|
Vanguard FTSE Developed Markets
|VOO||Vanguard S&P 500||$3,386.61||$19,346.1|
|XLE||Energy Select SPDR||$3,331.77||$12,677.6|
Vanguard FTSE Europe
Developed markets won investors faith the most in the first half of the year. A super easy monetary policy prevailing in most developed nations ranging from the U.S. to Japan and Europe bolstered the respective equity markets. As a result, VEA generated maximum assets in 1H14.
VNQ -U.S. REIT
Plunge in interest rates in the U.S. this year thanks to elevated risk-off trade sentiments made most of the rate-sensitive sectors winners in 1H14. The REIT sector with inherent long-term potential was no exception. As a result, investors poured money into the ultra-cheap Vanguard REIT fund VNQ.
VOO-S&P 500 Index
Though the U.S. economy was frozen by the Polar Vortex in Q1, investors still seem to have full faith in the world’s biggest economy. By now it has been confirmed that the U.S. economy shrank 2.9% in Q1 icing up all activities and key indicators, but spring sprung more jobs, car sales and manufacturing orders and set the economy in motion. As a result, the S&P 500 index hit record highs at least 20 times this year.
However, a hope of improvement did not shift investors’ attention from the low-cost ETF options. Probably, that is why, the Vanguard fund VOO following the S&P 500 index was the third highest asset gatherer in 1H14 replacing its rivals SPDR S&P 500 (SPY) and iShares Core S&P 500 (IVV).
VOO charges five bps in fees, SPY charges nine bps and IVV charges seven bps. In fact, Vanguard was this season’s hot issuer taking six out of the top 10 positions.
Energy was the name of the game in 1H14. First a harsh winter which raised the heating demand leading to increased need for energy and then geo-political tensions in oil rich nations like Russia and Iraq made energy equities the darlings of investors this year. Following the trend, XLE became the fourth highest asset accumulator in 1H14 (read: Market Beating Sector ETFs of 2014's First Half).
The European Central Bank recently made history by introducing a negative deposit rate. The ECB was the first big central bank to resort to such a step. In short, a rock-bottom interest rate policy, efforts to boost inflation and small-size businesses in the continent, sluggish recovery and many highly indebted nations’ return to normalcy led the Europe-based ETF VGK to secure a place in the top five list.
Biggest Losers 1H14 ($, Million)
|Ticker||ETF||1H14 Net Flows||AUM ($, Million)|
|SPY||SPDR S&P 500||-14,511.59||$168,460.1|
|VWO||Vanguard FTSE Emerging Markets||-2,357.64||$46,455.8|
|XLY||Consumer Discretionary Select SPDR|| |
Market Vectors Agribusiness
SPY – S&P 500 Index
SPY, having witnessed an outflow of $20.3 billion in assets up to May, was the hardest hit fund. Though it started to gain traction in June in line with the broader U.S. economy and amassed about $5.8 billion in assets, this was not sufficient enough to erase the massive outflows recorded in the past five months (read: Top ETF Stories of June).
QQQ – NASDAQ-100 Index
QQQ looks to track NASDAQ-100 index which was hit hard this year on high-beta pain. As a result, investors took their money out of that ETF pushing the fund down to the bottom-5 list.
VWO— Emerging Markets
VWO tracking the MSCI Emerging Markets Index saw asset drainage of about $2.35 billion. Focus on slow moving emerging markets like China, Brazil, South Africa, Russia might have resulted in assets gushing out of the fund. Also, with the Fed appearing to wrap up the QE program by the end of this year, emerging markets fell out of investor favor in anticipation of a cease in cheap dollar flows.
XLY – U.S. Consumer Discretionary
Activities toward consumer discretionary remained muted this year due to harsh chills, especially in Q1, resulting in XLY shedding assets in 1H14 (read: Time to Bet on Consumer Discretionary ETFs?).
MOO – Agribusiness
The U.S. Agribusiness is expected to remain choppy this year thanks to reduced grain production and worries over soil quality in wheat-producing areas. Investors lost faith in the sector, punishing it with considerable asset outflows.
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