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Q1 ETF Asset Report: Japan ETFs Reign

Zacks Equity Research

The first quarter of 2013 has been quite rewarding for the ETF industry, wherein some funds witnessed tremendous asset accumulation driven by growing investor confidence.

In fact, ETFs saw massive inflows of $54.73 billion in the quarter, marking the third biggest quarter inflows in the 20-year history of the industry. With this, total AUM reached the $1.467 trillion mark, which is 21% higher than the year-ago quarter.

In terms of funds driving this total, investors should note that equity products experienced the heaviest inflows followed by fixed income funds. Meanwhile, commodities lost over $6.6 billion in assets, due in large part to the terrible performance by gold and gold ETFs (read: Have We Seen the Bottom in Gold ETFs?).

Let us have a look at the top 10 most popular ETFs that witnessed a combined inflow of $19.91 billion in the quarter:




Inflows ($ in millions)

Expense Ratio

1st Quarter Returns


Japan Equities





Large Cap Equities





Total Bonds Market





All Cap Equities





All Cap Equities










Large Cap Equities





High Yield Bonds





Japan Equities





Financial Equities




                    *Source: Indexuniverse

Japan ETF: Rising Star

One segment that stands out on this list is Japan ETFs. Assets have been flowing into the nation at a robust rate, suggesting high levels of demand for these securities. Investors have flocked into the funds to take advantage of the surging economy and rising stock market as well as the declining yen.

Unsurprisingly, WisdomTree Japan Hedged Equity Fund (DXJ) is the top ETF of Q1, having gathered over $3.9 billion, propelling the fund’s asset base to nearly $5.6 billion. The ETF follows the WisdomTree Japan Hedged Equity Index while provides a hedge against any fall in the yen against the U.S. dollar. The fund charges a fee of 48 basis points on an annual basis (read: DXJ--Best ETF to Play the Japan Rally).

Another Japanese ETF – the iShares MSCI Japan ETF (EWJ) – tracking the MSCI Japan Index has also gained strong momentum as it pulled in roughly $1.5 billion in the quarter. The product has amassed about $7.3 billion in AUM so far while charging an expense ratio of 0.51%.

DXJ is up 11.71% during the quarter while EWJ has gained a bit less at 6.46%.

U.S. ETFs: Broad Rally, Broad Market ETFs

As broad markets are approaching their all-time highs, investors are gaining confidence over the riskier asset classes. As such, a number of domestic broad market funds have made it to the top 10 list, showing heavy inflows in Q1 on the heels of improving global economic conditions.

The iShares Core S&P 500 ETF (IVV) and the Vanguard S&P 500 ETF (VOO) have accumulated roughly $2.3 billion and $1.5 billion, respectively. These inflows have propelled the funds’ asset bases to $41.0 billion and $8.8 billion, respectively.

Both funds track the S&P 500 index and are the low cost choices in the space charging 0.07% and 0.05% in annual fees, respectively, from investors. Both products gained about 9.6% in the quarter (read: 3 Ways to Play the S&P 500 Rally with ETFs).

Beyond the S&P 500 funds, other broad market ETFs tracking other indexes have featured in this elite list. The Vanguard Total Stock Market ETF (VTI) tracking the MSCI US Broad Market Index and iShares MSCI USA Minimum Volatility ETF (USMV) tracking MSCI USA Minimum Volatility index have made it to the top 10 list.

The former is a total market ETF which comprises stocks from the entire spectrum of market capitalization, while the latter measures the performance of the U.S. securities that have lower absolute volatility.

VTI pulled in about $2.1 billion in Q1, reaching over $29 billion in total assets while USMV attracted about $1.7 billion, accumulating $2.6 billion in AUM so far. Both the products are cheap, charging 6 bps and 15 bps in annual fees, respectively. However, USMV leads in terms of returns by fetching investors 12.60% followed by VTI returning 9.89%.

Fixed Income ETFs: Mixed Bag

Given the threats of interest rate hikes later this year or in the next, investors are seeking safe exposure to fixed income. As such, some investors are back to the short-term bond markets, where default risk and interest rate sensitivity are low.

The PowerShares Senior Loan Portfolio Fund (BKLN) gathered $1.5 billion in the quarter, sending its asset base to $3.0 billion. The product provides exposure to the senior loan market and focuses on intermediate term investment grade corporate bonds.

The expense ratio is 76 bps a year, which is three times the low cost junk bond ETFs. The ETF gained 0.85% in the first quarter (see more ETFs in the Zacks ETF Center).

The Vanguard Short Term Bond ETF (BSV) is the only ETF in this list which has posted negative returns for the first quarter in spite of accumulating nearly $2.2 billion. The ETF zeroes in on the U.S. government, high-quality corporate, and investment-grade international dollar-denominated bonds having maturity of 1–5 years. It charges 11 bps per year in annual fees and has amassed $11.5 billion in AUM.

Real Estate ETFs: Winners of 2013

The real estate sector has been gaining immense popularity of late, thanks to a gradual recovery in the U.S. economy. Stronger commercial as well as residential real estate fundamentals, upbeat housing data and higher home prices are making securities in this segment attractive at present.

The Vanguard REIT ETF (VNQ) is the most popular ETF of Q1 in this segment tracking the MSCI US REIT Index. The fund gathered over $1.7 billion so far this year, leading to an asset base over $18.3 billion. The product added 7.51% in the quarter and is one of the low cost choices in the space, charging only 10 bps in annual fees from investors.

Financial ETFs: Top Sector of 2013

The only financial ETF that made to the top 10 list is Financial Select Sector SPDR (XLF), which follows the S&P Financial Select Sector Index. The fund has seen inflows of $1.3 billion in the same time frame, accumulating roughly $11.6 billion in its asset base.

The product generated double-digit returns in the quarter buoyed by an impressive comeback by bank stocks (read: Two Sector ETFs Posting Incredible Gains).

The strong performance was attributable to sound balance sheets, an uptick in mortgage activity, lesser credit loss provisions, expanding consumer credit, improved lending activity and good credit quality. Further, solid economic data such as higher consumer spending and GDP, an improving housing market as well as declining unemployment rate point towards optimism in Q2.

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