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Int’l Equity ETFs Fuel Record Year

Sumit Roy

To say that inflows into U.S.-listed ETFs are at all-time highs is an understatement. Through the first five months of 2017 inflows are shattering all records―with no end in sight to the stampede into exchange-traded funds.

Ever since the election, ETF investors have become downright euphoric about stocks. That hasn't changed with the recent controversies surrounding the Trump administration and the slow progress in getting the president's pro-growth agenda through Congress.

As sentiment on the U.S. economy and stock market has slightly cooled (the market is still climbing to new highs on a near-daily basis as of this writing, just at a slower pace), investors merely shifted their attention and money to international stocks.

More telling is that 2017 inflows into international equity ETFs surpassed those of U.S. equity ETFs in May, according to the latest data from FactSet. By the end of the month, year-to-date inflows into the former were $74.6 billion, compared to $68.5 billion for the latter.

Fixed Income Getting Love

Even fixed-income ETFs have been getting love from investors. In the first five months of the year, $48.5 billion flowed into U.S. fixed-income funds, while $8.4 billion flowed into international fixed-income funds.

Contrary to what many had believed at the start of the year, bond prices have rallied so far in 2017, with the U.S. 10-year Treasury yield falling from 2.45% to less than 2.2% by the end of May (bond prices and yields move inversely). Corporate bonds have also done well, as an improving economic outlook diminishes the chances of default.

Year-to-date, every major ETF segment, with the exception of two, has net inflows. Asset allocation funds and currency funds are the only two to see outflows—$70 million and $157 million, respectively.

Putting that all together, U.S.-listed ETFs have inflows of a whopping $203.8 billion through the end of May, pushing total assets under management in the space to $2.93 trillion. If that pace keeps up, inflows for 2017 as a whole may come in just shy of $500 billion, blowing past last year's annual record of $282 billion.


Investors Favor Low-Cost ETFs

To get their exposure to the markets, ETF gravitated toward the largest, most liquid, lowest-cost ETFs. The ultra-cheap iShares Core S&P 500 ETF (IVV), with a 0.04% expense ratio, was the biggest winner, with inflows of $14.2 billion. IVV became only the second ETF in history to accumulate assets under management of more than $100 billion (currently $112.6 billion).

Other winners included a pair of emerging market ETFs, the iShares Core MSCI Emerging Markets ETF (IEMG) and the Vanguard FTSE Emerging Markets ETF (VWO), which had inflows of $9.8 billion and $4.7 billion, respectively, through the end of May.

Investors chose those two cheap EM ETFs, both with expense ratios of 0.14%, over the more expensive iShares MSCI Emerging Markets ETF (EEM), which was noticeably absent from the list. EEM's 0.70% expense ratio is considered expensive, and cost-conscious investors have largely shunned the fund this year, adding only $1 billion to it.

IEMG To Surpass EEM In Assets

In fact, IEMG is on the brink of surpassing EEM in assets for the first time ever. As of this writing, the former has AUM of $31.4 billion, while the latter has AUM of $31.7 billion.  

Meanwhile, for developed market international exposure, investors favored ETFs such as the iShares Core MSCI EAFE ETF (IEFA), the iShares MSCI EAFE ETF (EFA) and the Vanguard FTSE Developed Markets ETF (VEA). Each of those has year-to-date creations of $7.6 billion to $8.1 billion.

The only fixed-income product to make the top 10 was the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), with its $6.1 billion worth of inflows. 


Asset Class AUM YTD Flows
U.S. Equity $1,642,324,085,554 $68,525.85
International Equity $653,247,041,902 $74,601.12
U.S. Fixed Income $467,394,538,586 $48,517.25
International Fixed Income $48,470,513,721 $8,447.64
Commodities $63,894,163,164 $618.81
Leveraged $27,652,551,438 $1,731.32
Alternatives $3,727,820,400 $455.33
Inverse $17,020,918,303 $1,147.34
Asset Allocation $7,056,410,100 -$70.08
Currency $1,276,266,358 -$156.50
Total $2,932,064,309,526.00 $203,818.08


Top 10 Creations YTD

Ticker Fund YTD Flows AUM % AUM
IVV iShares Core S&P 500 ETF $14,237.35 $112,567,384,160.00 12.65%
IEMG iShares Core MSCI Emerging Markets ETF $9,803.61 $31,407,370,500.00 31.21%
IEFA iShares Core MSCI EAFE ETF $8,081.33 $26,659,795,400.00 30.31%
EFA iShares MSCI EAFE ETF $7,673.91 $75,799,283,280.00 10.12%
VEA Vanguard FTSE Developed Markets ETF $7,614.58 $53,678,443,374.00 14.19%
VOO Vanguard S&P 500 ETF $7,407.50 $68,749,143,187.00 10.77%
LQD iShares iBoxx $ Investment Grade Corporate Bond ETF $6,092.68 $33,924,151,530.00 17.96%
VWO Vanguard FTSE Emerging Markets ETF $4,672.87 $55,071,713,844.00 8.49%
VTI Vanguard Total Stock Market ETF $4,223.75 $79,145,374,673.00 5.34%
EZU iShares MSCI Eurozone ETF $3,861.25 $12,654,662,580.00 30.51%


Contact Sumit Roy at sroy@ETF.com


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