Emerging Markets ETF Boom Continues

by on September 7, 2010 | ETFs Mentioned:

Over the last several years, the ETF industry has seemingly been locked in to “three steps forward, one step back” mode. August was the most recent step back, as ETFs experienced net cash outflows for only the second time this year. Total ETF assets declined by about $20 billion during the month, and outflows totaled nearly $2 billion. Perhaps reflecting overall market sentiment, investors ran to the exits of domestic equity funds during August, as outflows from this asset class topped $12 billion last month.

Although interest in U.S. equity markets has waned, appetite for emerging markets exposure remains strong. Cash inflows into the 50 funds in the Emerging Markets ETFdb Category for August stood at nearly $4.6 billion; including the 13 funds in the Latin America Equities ETFdb Category and the 16 in the China Equities ETFdb Category takes the grand total for August north of $5 billion. Year-to-date, these three categories have seen more than $15 billion in inflows.

According to the August stats, it isn’t just the big funds that are continuing to expand–although super-funds EEM and VWO scored impressive hauls last month. A number of smaller, more targeted ETFs offering exposure to emerging markets saw impressive surges in interest, doubling (or nearly doubling) in size during the last month:

Ticker ETF Aug. Inflows % July Assets
PIE PowerShares Emerging DWA Technical Leaders $92 million 174%
SCIN Small Cap India ETF $4 million 141%
FRN Claymore/BNY Mellon Frontier Markets ETF $52 million 89%
BICK First Trust BICK Index Fund $9 million 86%
EIDO iShares Indonesia Index Fund $4 million 70%

Debt ETFs Surge

It isn’t only emerging market equity securities that are in high demand among investors in the developed world; August saw two recently-launched ETFs offering exposure to emerging market debt surge as well. WisdomTree’s Emerging Markets Local Debt Fund (ELD), an actively-managed fund that invests in debt securities issued in emerging markets and denominated in the local currency, closed August with almost $200 million in assets. What’s so impressive is that ELD didn’t even exist at the beginning of August–that impressive haul came after the fund launched with $125 million and continued to haul in assets in its first few weeks.

A competing product from Van Eck garnered less interest, but the August performance of the Market Vectors Emerging Markets Local Currency Bond ETF (EMLC) was nothing to laugh at. This ETF raked in another $15 million to finish its first full month of operations with more than $50 million.

The uptick in emerging markets funds comes as more and more obstacles have popped up in the U.S., where catalysts for growth are nowhere to be seen. Emerging markets funds clearly aren’t a slam dunk investment–most emerging markets equity funds actually lost ground during August–but it seems as if they are clearly an increasingly attractive option in the minds of many investors.

Disclosure: No positions at time of writing.