Investor love for U.S. powers ETFs

There’s a big party going on in the States and investors are running to it in droves.

April 10, 2013

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US partyThere’s a big party going on in the U.S. and investors are running to it in droves. What are they celebrating? While not exactly a full-scale roaring back from the depths of recession, a few decent numbers have investors dancing around and pulling money out of safety assets, like gold and cash, and putting it into U.S. equities. This has had a huge effect on exchange-traded funds (ETFs), according to the latest data from BlackRock, which reports that in March the global exchange-traded product (ETP) industry posted its best first quarter ever with asset flows of $70.1 billion.

Said BlackRock global chief investment strategist Russ Koesterich, “Despite continued market volatility, investors recognize that the fundamentals in the United States are generally favourable, given strong corporate earnings and cheap equity valuations.”

A great rotation? Maybe—although just a couple of days after the release of the BlackRock data, the Toronto Stock Exchange experienced a triple digit loss as the U.S. generated some underwhelming jobs and manufacturing data. All this as indexing pioneer John Bogle reminded us that markets can, and do, tank from time to time. On March 3, he told CNBC’s Scott Wapner that investors should get ready for at least two market declines of 25% to 50% in the coming decade. A great rotation does not a stable market make.

Still, investors are eagerly waiting for any good news from the U.S. and any positive signs will likely be greeted by more people joining the equity party as they seek to capture stocks at their low point.

Other ETF highlights from the quarter include the following:

developed markets equity exchange-traded products brought in $23.2billion during the month and 71% of that came from funds with U.S. exposure;

U.S. large cap led with flows of $8.3 billion. Investors poured $3.4 billion into U.S. sector funds, putting the most money to work in financials, real estate, healthcare and consumer cyclicals;

dividend income funds remain a key area of focus as well, attracting $3.0 billion of new assets in March;

European equity exposures experienced outflows of $2.3 billion as tensions prompted by the Cyprus bailout situation contributed to redemptions for the Pan European category;

emerging markets equity outflows of $4.7 billion came primarily from broad EM funds and further eroded the $10.9 billion gathered in January. Mexico equity was a bright spot during the month attracting $1.2 billion;

Fixed income inflows of $7.2 billion were robust compared to recent months. Short maturity fixed income gathered $3.8 billion during March, including another $0.6 billion for floating rate, which has already seen 2013 flows of $2.1billion eclipse the full-year total from last year;

gold ETPs experienced a third consecutive month of outflows with $2.4 billion bringing Q1 redemptions to $9.2 billion. With rates low, the dollar strong and investors bringing money off the sidelines, meaningful headwinds persist for this category; and two new ETFs listed in China captured most of the flow into newly launched ETPs year-to-date.

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