Data confirm exchange-traded funds set another torrid pace in terms of adding assets in May. What else was confirmed was investors' interest in ex-U.S. developed markets ETFs, including Europe funds.
“The headline number for new money flowing into Exchange Traded Funds moderated in May to about $28 billion, down from about $36 billion in April,” said AltaVista Research in a recent note. “However, stripping out the effect of short sales, net long money flows actually increased slightly, to almost $37 billion in May from $34 billion in April. (The unwinding of short positions increases net long flows).”
International Equity ETFs
Investors' enthusiasm for international equity ETFs is on the rise in the second quarter as six such funds are among the quarter's top 10 asset-gathering ETFs. Two of those six – the iShares MSCI Eurozone ETF (NYSE: EZU) and the Vanguard FTSE Europe ETF (NYSE: VGK) – are Europe ETFs. EZU and VGK are diversified Europe ETFs, but the iShares offering is a dedicated Eurozone play while VGK holds British, Swiss and Nordic stocks in addition stocks from Eurozone nations.
“But the big take-away from the May data comes from looking under the hood, which shows that foreign assets are capturing an outsized share of investment flows. New money flowing into European stocks represented an increase of 4.4 percent in assets (on a net-long basis), compared with just 0.5 percent for U.S. stocks,” said AltaVista.
Data indicate that investors allocated capital to Japan and emerging markets ETFs last month at clips that were well ahead of the 0.5 percent seen for U.S. equity funds.
Shifting Away From U.S.
“The move towards foreign shares makes more sense if it is part of a strategic shift in allocation, since as a group ETF investors are still dramatically overallocated to U.S. stocks,” said AltaVista. Of the approximately $2.3 trillion in assets allocated through equity ETFs, about $1.6 trillion, or 71 percent, is invested in U.S. stocks. That compares to about 51 percent of the MSCI All Country World Index that is allocated to U.S. companies.”
Other ETFs indicate investors have faith the European Central Bank (ECB) will not taper its quantitative easing regime and that they believe euro is set to decline. The WisdomTree Europe Hedged Equity Fund (NYSE: HEDJ) has added nearly $134 million in new money this quarter. HEDJ is up 14.3 percent year to date.
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