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Q3 ETF Asset Flow Roundup

Zacks Equity Research

The third-quarter of 2015 was teeming with economic shockers that bulldozed risky investments worldwide but showered gains on some safe bids. While a hard landing fear in China was the actual culprit, a long-standing guesswork on the Fed’s liftoff timeline was a partner in crime.

Yet, we admit that nothing could stand against the China issues that include sudden currency devaluation, multi-year low manufacturing data and a massive crash in the Chinese market. The resultant shockwaves, swooning commodities and the return of deflationary fears in the Euro zone also set the dark stage for the third quarter’s investing activity.

The combined impact of these events led the largest S&P 500-focused U.S. ETF SPY to lose about 7.7%, Nasdaq-oriented ETF QQQ to shed 5.7% and Dow-based ETF DIA  to retreat about 8.4% in Q3. iShares MSCI All Country World Index Fund (ACWI) was off about 9.8% in the quarter. Overall, the global market was quite disastrous for investors as most key indices endured the worst quarter in four years.

In such a scenario, investors might thus want to check out the top and worst grossing ETFs of Q3 to see which products cashed in on the market crash and which lost out.

Winners of Q3

S&P 500 – SPDR S&P 500 (SPY)

Though volatility rocked the show in the third quarter as China-led global growth fears and its ripples in the other emerging and developed economies muddled the market momentum, steady U.S. growth impressed investors. Also, the Fed’s reiteration of near zero interest rates at the end of the quarter resulted in strong inflows into the U.S. equity funds.

The ultra-popular SPY led the way last month, gathering over $8.4 billion in capital. Not only SPY, another popular S&P 500 ETFs namely Vanguard S&P 500 (VOO) accumulated $4.45 billion in assets.

U.S. Treasury Bonds – iShares 1-3 Year Treasury Bond (SHY)

With the Fed still hesitating to hike the benchmark interest rates even almost after a decade, bond investing prevailed in Q3. Though September was a chancy month for the lift-off, a global market rout in August, a choppy global market and a still-low inflation level in the U.S. held the Fed back from catapulting a lift-off.

This gave a big-time boost to the short-term U.S. Treasury bond ETFs. As a result, SHY garnered about $4.05 billion in assets in Q3. SPDR Barclays 1-3 Month T-bill (BIL) also piled up $1.66 billion in assets and made it to the top-10 asset scorers’ list (read: Guide to Interest Rate Hikes and ETFs: 4 Ways to Play).

Since the global macroeconomic environment was tumultuous in Q3, investors sought refuse in safe haven bids like intermediate-to-long term treasury ETFs. These offer investors safety along with a decent level of current income. Thanks to this sentiment, iShares 7-10 Year Treasury Bond ETF (IEF) and         iShares 20+ Year Treasury Bond (TLT) attracted about $2.40 billion and $1.65 billion of AUM during the quarter (read: ETF Winners & Losers Post Dovish Fed Meet).

Hedged Global – Deutsche X-trackers MSCI EAFE Hedged Equity ETF (DBEF)

The global economy may be lagging, but investors’ penchant for currency-hedged global equity ETF investing is not. The policy divergence stemmed from the looming Fed tightening and the easy money policies in most developed economies made hedged international investments a compelling opportunity for U.S. investors and led them to pour about $2.38 billion in assets in DBEF. Several other Europe-based ETFs including iShares MSCI EMU ETF (EZU) and Vanguard FTSE Europe ETF (VGK) hauled in respectively $1.7 billion and $1.6 billion assets in Q3.

Top Losers

Emerging Market – Vanguard FTSE Emerging Markets (VWO)

Emerging markets were hard hit in Q3 thanks to the double whammy of China-induced worries and the Fed rate hike tensions. This clearly explains why two top-notch emerging market ETFs namely VWO and iShares MSCI Emerging Markets ETF (EEM) saw assets bleeding in the quarter. The funds, VWO and EEM saw outflows of about $3.44 billion and $2.79 billion respectively in the quarter (read: Playing Emerging Markets? Try the New Ex-China ETF).

Un-hedged Global – iShares MSCI EAFE (EFA)

Since sooner or later the Fed is due for a policy tightening, investors started to dump non currency-hedged international ETFs like EFA. The fund shed about $1.13 billion in assets in the quarter.

Gold – SPDR Gold Shares (GLD)

Gold has slipped to multi-year lows on a stronger dollar, a still-muted inflationary backdrop worldwide and the slowdown in China, which is one of the largest consumers of gold. Though the recent global market rout offered gold the much-needed respite for a brief session on the metal’s safe haven appeal, the underlying fundamentals are weak. So, investors abandoned this product in Q3, resulting in about $922 million in net outflows (read: Gold Mining ETFs Are Crashing).

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