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Record $12B ETF Outflows In June 2013

Olly Ludwig


ETF investors bailed out of just about every asset class in June, fueling what appears to be all-time record monthly outflows from U.S.-listed exchange-traded funds, as skittishness about the prospect of the Federal Reserve normalizing interest rates threw financial markets into disarray and put the prospect of 2013 being a record year of ETF inflows into question.

Nearly $12 billion has spilled out of the ETF market this month through Thursday, June 27, pulling total U.S.-listed ETF assets down by around 5 percent on the month, to almost $1.438 trillion, according to data compiled by IndexUniverse. The last time the U.S. ETF industry suffered any outflows—period—was in December 2011, when investors yanked a mere $20 million out of the market.

The upheaval in markets that the world of ETFs is reflecting so dutifully began on May 22, when Fed Chairman Ben Bernanke said the U.S. central bank might well begin to "taper" its quantitative easing program this year. Markets saw this as a unsettling sign that the end of the unprecedented era of monetary stimulus was coming into focus, causing investors to reconsider risks they were taking.

The outflows in June have left year-to-date inflows at just over $73 billion—less than the $76 billion in the first half of 2012. Last year, inflows ended at a record $188 billion , and many ETF industry sources predicted inflows in 2013 would shatter that record. The unexpectedly large outflows in June have called those predictions into question.

Nowhere did they rush for the exits more dramatically than in international equities, where redemptions totaled $7.38 billion. The most unpopular ETF last month was the iShares MSCI Emerging Markets Index Fund (EEM), which had outflows of around $3.84 billion.

That said, U.S. and international fixed-income funds together recorded outflows of more than $7.3 billion, with more than $6.3 billion of that coming from U.S. bond funds.

While that $7.3 billion bond ETF outflows figure is about equal to the $9 billion international equities outflows figure on a nominal basis, the bond figure amounts to more than 3 percent of all assets invested in U.S.-listed bond ETFs, while the $9 billion international equities figure amounts to just 1 percent of all assets invested in U.S.-listed equities.

Translation:The real dislocation in financial markets is definitely emanating from fixed-income markets, where price volatility was creating volatility in ETF flows. Some were so flummoxed by what the Fed’s changing posture could mean that they were parking money in cash, some market sources told IndexUniverse.


"I think this is 80 percent the Fed and 20 percent everything else," said Nick Colas, chief market strategist of BNY ConvergEx Group, a Wall Street trading and technology firm. Colas said the "everything else" piece included variables such as rumblings of trouble in China's credit markets as well as social unrest in once-high-flying emerging markets, including Turkey and Brazil.

Right behind EEM on the redemptions list was the $19.4 billion iShares iBoxx $ Investment Grade Corporate Bond Fund (LQD), which suffered outflows of $2.39 billion.

Commodities suffered upward of $2.4 billion in outflows, and gold—the ultimate lightning rod of emotional reactivity in markets—was at the center of that. The SPDR Gold Shares (GLD), the world's biggest gold bullion ETF, had redemptions of $1.8 billion in the month-to-date period. The huge gold fund, including gold's 25 percent price slide, has lost more than 40 percent of its assets this year.

"Shorten duration, and get into reliable parts of the market like U.S. equities," Colas said, summarizing what he reckoned many investors must be thinking these days.

Many sources who watch the world of ETFs closely are genuinely flat-footed by the outflows in June brought on by the Fed’s signaling, and aren’t sure what might happen next.

Still, there’s a general sense that, over the longer term, the ETF asset-gathering juggernaut will stabilize and again step into high gear.

“I think this may not be the only outflows month in 2013, but the merits of an ETF vs. mutual fund are still there,” said Todd Rosenbluth, an analyst at S'P Capital IQ in New York, who focuses closely on ETFs.

Rosenbluth said it seems plausible that when investors return to the markets once the redemption wave recedes, they’ll get back in using ETFs—equities or bond ETFs—instead of mutual funds, because ETFs are cheaper and many mutual funds aren’t beating, let alone matching, the performance of their benchmarks.

He said S'P Capital IQ was counseling investors to start looking at U.S. consumer cyclicals—precisely the sorts of equities like financials, retail, autos and entertainment that are likely to do well if the economy, as the Fed says, is improving.

Indeed, U.S. equities were the one exception to the outflows story in June, pulling in $4.89 billion in the month so far.

"That was one of the only areas of the ETF market with inflows, but it wasn't enough to offset the rest," ConvergEx's Colas said.



(The following table, with $14 billion in net outflows, reflects month-to-date data through Wednesday, June 26. The total outflows number of around $12 billion in the headline and text above reflects the inclusion of net ETF inflows of around $2 billion on the final two trading days in June. Those inflows thus trimmed net month-to-date outflows to about $12 billion.)

June 2013 Month-To-Date Total Flows
June 2013 MTD Total Flows Net Flows ($, mm) AUM ($, mm) % of AUM
U.S. Equity 4,496.01 738,881.21 0.61%
International Equity -8,815.11 316,970.44 -2.78%
U.S. Fixed Income -7,030.02 225,206.97 -3.12%
International Fixed Income -1,134.65 25,557.52 -4.44%
Commodities -2,419.25 72,195.91 -3.35%
Currency 75.91 2,505.37 3.03%
Leveraged 1,090.44 15,340.21 7.11%
Inverse 280.47 21,020.53 1.33%
Asset Allocation 37.65 3,511.12 1.07%
Alternatives -799.49 3,003.77 -26.62%
Total: -14,218.03 1,424,193.06 -1.00%


June 2013 Month-To-Date Biggest Losers
Ticker Name Issuer 6/26/13 MTD Flows 6/26/13 MTD AUM ($, M) 6/26/13 MTD Turnover
EEM iShares MSCI Emerging Markets BlackRock -4,581.20 32,775.63 66,115.95
LQD iShares iBoxx $ Investment Grade Corporate Bond BlackRock -2,387.06 19,406.94 7,818.57
VWO Vanguard FTSE Emerging Markets Vanguard -1,942.26 47,704.27 20,708.68
GLD SPDR Gold SSgA -1,831.86 38,517.77 24,615.15
TIP iShares Barclays TIPS Bond BlackRock -1,751.40 15,921.96 4,318.61
IEI iShares Barclays 3-7 Year Treasury Bond BlackRock -1,515.99 2,300.21 2,342.83
JNK SPDR Barclays High Yield Bond SSgA -1,277.06 9,092.16 8,223.48
SPY SPDR S'P 500 SSgA -1,113.17 134,450.83 525,862.64
UST ProShares Ultra 7-10 Year Treasury ProShares -1,113.13 23.23 1,363.06
EWH iShares MSCI Hong Kong BlackRock -1,093.67 2,159.44 3,139.11


June 2013 Month-To-Date Top Gainers
Ticker Name Issuer 6/26/13 MTD Flows 6/26/13 MTD AUM ($, M) 6/26/13 MTD Turnover
EWG iShares MSCI Germany BlackRock 1,177.93 3,986.88 2,098.31
UWM ProShares Ultra Russell 2000 ProShares 1,116.97 1,222.64 2,248.37
TLT iShares Barclays 20+ Year Treasury Bond BlackRock 995.42 4,144.52 25,245.35
GDX Market Vectors Gold Miners Van Eck 888.06 5,121.77 11,570.41
IWM iShares Russell 2000 BlackRock 871.74 21,513.28 88,393.28
IVV iShares Core S'P 500 BlackRock 837.73 42,528.40 15,953.94
SHY iShares Barclays 1-3 Year Treasury Bond BlackRock 674.22 8,204.00 2,396.15
SCPB SPDR Barclays Short Term Corporate Bond SSgA 622.80 2,797.86 1,031.41
MINT PIMCO Enhanced Short Maturity Strategy PIMCO 603.50 3,576.72 1,176.99
SHV iShares Barclays Short Treasury Bond BlackRock 584.23 4,717.42 1,733.98


2013 Year-To-Date Total Flows
2013 YTD Total Flows Net Flows ($, mm) AUM ($, mm) % of AUM
U.S. Equity 57,625.07 738,881.21 7.80%
International Equity 15,914.59 316,970.44 5.02%
U.S. Fixed Income 7,692.16 225,206.97 3.42%
International Fixed Income 1,914.96 25,557.52 7.49%
Commodities -21,261.74 72,195.91 -29.45%
Currency -49.81 2,505.37 -1.99%
Leveraged 2,068.20 15,340.21 13.48%
Inverse 5,179.73 21,020.53 24.64%
Asset Allocation 1,130.15 3,511.12 32.19%
Alternatives 510.08 3,003.77 16.98%
Total: 70,723.38 1,424,193.06 4.97%

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