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Following ETF Money


The 2014 trend of outflows from equity-based exchange traded funds is not abating. At least not yet.

Last month, investors pulled nearly $10 billion from exchange traded products after ETF inflows reached a record last year, topping $200 billion for the second consecutive year. Equity-based ETFs were the culprits, shedding $10 billion “and diverged from the strong starts seen in the past two years. Investors continued to turn to ETPs to efficiently execute their market views during a volatile month for stocks,” according to BlackRock. [ETFs Bleed $10 Billion in January]

January 2014 was the worst January since 2010 in terms of ETF outflows. Things are not getting better this month.

“ETFs – which have been reliably winning share over MFs since the Financial Crisis – are still in the red for 2014-to-date, at ($8.3) billion of outflows. Dig a little deeper into the ETF flows, and the mysteries compound. U.S. equity ETFs are down $24.7 billion in assets from redemptions, with three products accounting for essentially the entire ETF exodus from domestic stock funds,” said Nicholas Colas, chief market strategist at ConvergEx Group, a global brokerage company based in New York, in a note out Wednesday.

The three ETFs referenced by Colas are the SPDR S&P 500 ETF (SPY) , iShares Core S&P 500 ETF (IVV) and the iShares Russell 2000 ETF (IWM) .

Colas notes that bond ETFs have been the beneficiaries of the flight from U.S. equity funds, raking in $17.1 billion in capital since the start of this year.  Four of the top 10 ETFs in terms of year-to-date inflows and all of the top three are bond funds. [Bond ETFs Renew Safe-Haven Appeal]

Emerging markets have been problematic on the outflow front as well. Add the iShares MSCI Emerging Markets ETF (EEM) and the Vanguard FTSE Emerging Markets ETF (VWO) to the group of SPY, IVV and IWM, those ETFs have seen combined outflows of $35.2 billion in just six weeks, according to Colas.

“This is too large a number to simply note with an asterisk and focus on the other 1,562 exchange traded products that are, in aggregate, up $26.9 billion in fresh money for 2014,” he said.

There are bright spots amid the departures from broader U.S. equity ETFs with Europe being a prime example. The iShares MSCI EMU ETF (EZU) and the Vanguard FTSE Europe ETF (VGK) have brought in nearly $3 billion combined since the start of the year while the WisdomTree Europe SmallCap Dividend Fund (DFE) recently joined the $1 billion in assets club after having less than $500 million in early December. [Europe ETFs Enjoying Massive Inflows]

Colas also points out that health care and technology funds have combined for nearly $6 billion worth of inflows.

Tom Lydon’s clients own shares of EEM, IWM and SPY.