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Where ETF Cash Flowed in the First Half


Helped by a strong showing in June, inflows to U.S. exchange traded funds totaled $74 billion in the first half of this year with a third, or $26 billion, of that total coming in last month.

Combined assets under management at U.S.-listed exchange traded products, including ETFs and exchange traded notes (ETNs) now reside at a record $1.86 trillion.

“Among the ten biggest asset gatherers in the first half, six of them were Vanguard products. iShares still is the U.S. ETF market leader (39% share) followed by State Street (22%),Vanguard (21%) and PowerShares (6%),” said S&P Capital IQ in a new research note.

The Vanguard FTSE Developed Markets ETF (VEA) was the top asset-gathering ETF through the first six months of 2014 with inflows of $4 billion, according to S&P Capital IQ. The research firm rates VEA overweight. [ETF Flows Firm in Q2]

VEA, which is up 4.4% this year, allocates a combined 40.1% of its weight to British and Japanese stocks. France, Germany and Switzerland round out the ETF’s top-five country weights. VEA charges just 0.09% per year, beating 93% of rival funds on fees, according to Vanguard.

Other international ETFs also flexed their asset-gathering acumen in the first six months of 2014. The Vanguard FTSE Europe ETF (VGK) and the iShares MSCI EMU ETF (EZU) combined for first-half inflows of $6 billion, according to S&P Capital IQ. The research firm rates each ETF marketweight.

VGK and EZU were not the only impressive asset gatherers among Europe ETFs in the first six months of 2014. For example, the WisdomTree Europe Hedged Equity Fund (HEDJ) topped $1 billion in AUM in April and has since nearly doubled to $1.9 billion. The WisdomTree Europe SmallCap Dividend Fund (DFE) crossed the $1 billion in mark in February and has since grown by 76%. [Maybe the Best Europe ETF...Again]

In the second quarter, iShares was the inflows leader due in large part to nearly $6 billion of inflows to the iShares MSCI Emerging Markets ETF (EEM) . [iShares Leads Q2 ETF Flows]

“ After outflows in the last seven months of 2013, fixed income mutual funds gathered $60 billion in fresh money during this year with non-short maturity products adding $49 billion. The overall number is now ahead of the $40 billion of inflows for ETFs. While short-term ETFs remained popular, with $9.3 billion in new assets in the first half of 2014, this was outpaced by the $31 billion for other maturity buckets as interest rates have come down making longer-term products more appealing,” said S&P Capital IQ.

Among sector ETFs, the Energy Select Sector SPDR (XLE) is easily this year’s leader with inflows north of $3 billion. Even with the energy rally, the sector remains attractively valued. The sector trades at 15.6 times earnings compared to 17 times for the S&P 500, but energy stocks are expected to post earnings growth of 14.6% compared to 11.1% for the benchmark U.S. index, according to Bloomberg.

The second quarter more robust inflows to sector funds as the Industrial Select Sector SPDR (XLI) and the Utilities Select Sector SPDR (XLU) saw quarterly flows of $1.5 billion and $1.4 billion, respectively.

Vanguard FTSE Developed Markets ETF



Tom Lydon’s clients own shares of EEM and HEDJ.