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February 2014: Mixed signals drive bond ETFs through the first week

Avik Chowdhury

An economic indicator: Why fund flows should concern investors (Part 6 of 7)

(Continued from Part 5)

Investors pulled out more than $9.79 billion from ETFs in the week ended February 6, bringing down the total U.S.-listed ETF assets by 4 % to $1.625 trillion. After the financial crisis, ETFs relied heavily on equities in 2013, as the S&P 500 Index went up by around 30% during the year. The market has fallen by around 4% in 2014, as economic data show elevated level of uncertainty.

There had been some mixed signals in the beginning of the year. In December 2013 and January 2014, unemployment rate increased. The total nonfarm payroll employment rose by 113,000 in January, and the unemployment rate was little changed at 6.6%. During the fourth quarter of 2013, economy grew by around 3.2% over the third quarter of 2013. All these slowly started to prompt the investors to flock back to bond ETFs in fear of return of risks pattern as observed in the 2008 crisis.

Also, concerns in other parts of the globe such as Japan and Europe about an asset-price bubble in the emerging markets added to investors’ dilemma. Although it is a little farfetched to talk about any ensuing crisis, uneasiness in investor sentiments led to a surge in demand of bond ETFs. Plus, there was the concern in other parts of the world, such as Japan and Europe, that an asset-price bubble that has been growing in the emerging markets over the past five years may be deflating.

The iShares 1-3 Years Treasury Bond ETF (SHY) led all bond funds, raking in $3.7 billion last week and bringing its total assets up to $11.86 billion. The SPDR S&P 500 (SPY) was the least popular ETF last week, redeeming $8.63 billion and bringing its assets down to $144 billion.

Continue to Part 7

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