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ETF Report
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Contents
Introduction .................................................................................................................................................. 3 Flows by Asset Class ...................................................................................................................................... 4 Flows by Asset Class in % of Assets............................................................................................................... 5 IG Bonds: Flows in % of Assets ...................................................................................................................... 6 HY Bonds: Flows in % of Assets ..................................................................................................................... 7 US Equities: Flows in % of Assets .................................................................................................................. 8 International Equities: Flows in % of Assets ................................................................................................. 9 Precious Metals: Flows in % of Assets ........................................................................................................ 10 Risk Appetite: High ...................................................................................................................................... 11 Conclusions ................................................................................................................................................. 12
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Source: IndexUniverse.com Source: Morningstar Direct US Open-end asset flows update, January 2013 3 Excluding $2.6 trillion in US Money Market Mutual Funds
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One way to analyze flows is to aggregate them by asset class in dollar terms. Above you see cumulative flows over the last 12 months. Observations: International equities experienced $12 (previous month: $17) billion in inflows Domestic equities saw inflows of $16bn ($18bn) Investment-grade (IG) bonds rose by $4bn ($6bn) Precious metal-related ETF's collapsed to zero (1bn) Real-estate remained at $5bn of inflows Inflows into high-yield (HY) bond ETF's remained at zero. In March, high-yield bond ETF HYG its first inflow ($421m) after five consecutive months of outflows ($2.4bn).
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An inflow of $1bn does not matter much for SPY, the 'king' of ETF's, with its $125bn assets. However, it might matter for the $5bn Russel MidCap ETF (IWR). It therefore makes sense to also look at flows relative to the asset base. Observations: Real estate shows the strongest relative inflows of 49% (previous report: 47%) International equity ETF's enjoyed inflows of 28% of AuM (32%) US equity ETF's grew by 20% (22%) of AuM Inflows into high-yield bond ETF's slowed to 7% of AuM (8%), while investment grade ETF's grew by 5% (7%) Flows into precious-metal related ETF's slowed to 2% (4%)
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Investor preferences change, and so do flows. Looking at rolling changes in flows can reveal interesting trends. Observations: TLT (20+ year Treasury bonds) has seen two consecutive months of inflows TIP (Treasury inflation-protected bonds) had outflows in 8 out of the last 10 months The enthusiasm for BND (total bond market) continued to cool off LQD (investment-grade corporate bonds) had four months of consecutive outflows Municipal bond ETF (MUB) is losing a bit of momentum
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Observations: The massive inflows into speculative bond ETF's seen in 2012 have come to an end Junk-bond ETF (JNK) had two consecutive months of outflows High-yield ETF (HYG) saw one month of inflows after five consecutive months of outflows Waning demand from high-yield ETF's might make it more difficult for lowly rated borrowers to access capital markets or could lead to stricter covenants Leveraged buy-outs (LBO's) depend on a receptive high-yield market for financing; if inflows stop, additional supply would likely be absorbed only at higher yields
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Observations: Nasdaq (QQQ) and Dow Jones (DIA) related ETF's have lagged overall inflows into domestic equity ETF's. This might have to do with the end of the bubble in the stock price of Apple, which is heavily weighted in Nasdaq benchmark indices. For the Dow Jones we can only speculate investors might finally realize the nonsensical nature of a price-weighted index. Inflows into IVV are accelerating as indices are near all-time highs Inflows into IWR (Russell MidCap) have slowed down somewhat (first month of outflows after six consecutive months of inflows)
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Observations: In good times, investors feel confident and venture abroad in search of higher returns Broad international equity ETF (EFA) saw the first outflows since September 2012 In March, the Emerging Markets ETF (EEM) experienced the largest outflows of any ETF we follow (-4.2bn) for its second consecutive month of outflows. The other Emerging Markets ETF (VWO) also had large outflows (-$1bn), the first since November 2012.
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Observations: Interest in precious-metal related investments is, with the exception of silver, close to a freezing point Flows into the Senior Gold Miners ETF (GDX) were concentrated over two months (August and September 2011), coinciding with the all-time high in spot gold prices ($1,923/oz) GLD experienced its third consecutive month of outflows with a combined $6.6bn leaving the ETF. Despite negative performance, Gold mining stock ETF (GDX) had its second consecutive month of inflows Despite negative performance, silver ETF (SLV) had its fourth consecutive month of inflows.
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Here, we calculate the ratio between two sub-groups of the same asset class: speculative bond (HYG, JNK) to non-speculative bond ETF's (TLT,TIP, BND, LQD, MUB) international equity (VWO, EFA, EEM) to domestic equity ETF's (SPY, QQQ, IVV, VTI, DIA, IWR)
We used relative assets under management instead of relative flows as the time series are quite volatile. Observations: Risk appetite remains near the highest level seen since the beginning of our data.
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Disclaimer: It should be self-evident this is for informational and educational purposes only and shall not be taken as investment advice. Nothing posted here shall constitute a solicitation, recommendation or endorsement to buy or sell any security or other financial instrument. You shouldn't be surprised that accounts managed by Lighthouse Investment Management or the author may have financial interests in any instruments mentioned in these posts. We may buy or sell at any time, might not disclose those actions and we might not necessarily disclose updated information should we discover a fault with our analysis. The author has no obligation to update any information posted here. We reserve the right to make investment decisions inconsistent with the views expressed here. We can't make any representations or warranties as to the accuracy, completeness or timeliness of the information posted. All liability for errors, omissions, misinterpretation or misuse of any information posted is excluded. +++++++++++++++++++++++++++++++++++++++ All clients have their own individual accounts held at an independent, well-known brokerage company (US) or bank (Europe). This institution executes trades, sends confirms and statements. Lighthouse Investment Management does not take custody of any client assets.
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