February ETF Flows: Commodities Are Hot, Emerging Markets Are Not

by on March 4, 2011 | ETFs Mentioned:

February marked another month of growth for the U.S. ETF industry, though the pace of inflows slowed a bit from recent months. According to data from the National Stock Exchange assets stood at $1.055 trillion at the end of February, an increase of about 3.5% over the previous month. February inflows totaled $7.4 billion, down slightly from the $10.3 billion that came in during January.

Commodities Heat Up, Emerging Markets Cool Off

Domestic equity ETFs saw inflows of nearly $3.6 billion in February after taking in nearly $10 billion the previous month. International ETFs saw a second straight month of outflows, reversing the trend of 2010. Commodity ETPs also enjoyed a surge in interest over the last month, thanks no doubt to a continued rally in natural resource prices. About $2.3 billion flowed into commodity funds, though many oil funds actually saw outflows (USO bled $180 million). The PowerShares DB Agriculture Fund (DBA) took in more than $500 million, while the iShares Silver (SLV) and gold (IAU) funds also raked in cash. The United States Natural Gas Fund (UNG), which lost more than 10% of its value on the month, saw inflows of more than $300 million [also see ETFs Off To A Hot Start In 2011].

After taking in huge amounts of assets in 2009, non-precious metals commodity ETFs lost some of their appeal last year and saw minimal inflows. Futures-based funds saw strong inflows in February, including the “contango killing” United States Commodity Index Fund (USCI). That fund took in about $165 million in cash flows, more than doubling in size on the month.

Emerging markets fell out of favor with ETF investors in February; the ETFs in the Emerging Markets ETFdb Category saw aggregate outflows of $4.6 billion on the month, while the Latin America Equities ETFdb Category bled more than $300 million. Some of the biggest monthly outflows were attributable to the Vanguard MSCI Emerging Markets ETF (VWO) and the iShares MSCI Emerging Markets Index Fund (EEM), which lost $1.4 billion and $2.4 billion, respectively. VWO, which recently cut expenses from 0.27% to 0.22%, now has a commanding lead over EEM in terms of assets; the Vanguard fund had $43 billion in AUM at the end of February compared to $36.6 billion for the competing iShares product. A year ago, EEM had $33.2 billion compared to $20.5 billion for VWO. Both funds seek to replicate the MSCI Emerging Markets Index [see ETF Investors Embracing Low Cost Options...Or Are They?].

In another closely watched head-to-head battle, the iShares COMEX Gold Trust (IAU) further narrowed the gap on the Gold SPDR (GLD). IAU saw inflows of about $340 million, while almost $700 million flowed out of GLD. Last summer iShares cut the expense ratio on IAU from 0.40% to 0.25%, and the fund has narrowed the gap to its much larger competitor in terms of assets ever since [also see Commodity ETFs Get No Love From Investors].

Vanguard Momentum Continues

Once again Vanguard led all issuers in inflows for the month, taking in more than $2.5 billion despite the big outflows from VWO. Blackrock also saw strong inflows despite big losses from its flagship emerging markets ETF, taking in $1.8 billion in February. The biggest outflows were experienced by State Street; SPY and GLD, the two largest U.S.-listed ETFs by assets, saw close to $2 billion in aggregate outflows.

More than 20 ETFs saw February inflows equal to 100% or more of assets from the previous month. The U.S. Brent Oil Fund (BNO) grew from just $7 million in January to $37 million in February as investors sought out exposure to oil contracts. The WisdomTree Managed Futures Strategy Fund (WDTI), which debuted in January, grew from $20 million to $41 million during the month. The AdvisorShares Active Bear ETF (HDGE) saw assets jump from $13 million to $37 million [see Under The Hood Of Active Bear ETF].

Interest in Canadian equities also surged last month; the IQ Canada Small Cap ETF (CNDA) took in $63 million–or more than 100% of the fund’s assets at the end of January.

Feb ’09 Feb ’10 Jan ’11 Feb ’11
% ETFs With AUM > $100M 38% 48% 50% 51%
% ETNs With AUM > $100M 8% 15% 16% 18%
Source: NSX.com

At the end of February, 51% of ETFs and 18% of ETNs had at least $100 million in AUM. That metric increased modestly from January, and has jumped by 3% over the last year. Two years ago, just 38% of U.S.-listed ETFs and 8% of ETNs had $100 million in assets.

Disclosure: No positions at time of writing, photo is courtesy of Marcelo Matarazzo.