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Contents
Introduction .................................................................................................................................................. 2 Flows by asset class....................................................................................................................................... 3 Flows by asset class in % of assets ................................................................................................................ 4 Investment-grade bonds: rolling 12-months flows in % of assets ................................................................ 5 High-yield bonds: rolling 12-months flows in % of assets ............................................................................ 6 US equities: rolling 12-months flows in % of assets ..................................................................................... 7 International equities: rolling 12-months flows in % of assets..................................................................... 8 Precious metals: rolling 12-months flows in % of assets .............................................................................. 9 Risk appetite: high ...................................................................................................................................... 10 Conclusions ................................................................................................................................................. 11
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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 were relegated to second place with roughly $18 (precious report: $20) billion inflows Domestic equities saw inflows of $18bn ($16bn) Safe bonds are next with $6bn ($7bn) Precious metal-related ETF's collapsed to $1bn (5bn) Real-estate remained at $5bn of inflows Inflows into speculative bond ETF's fell to zero from $4bn, an important development. The highyield bond ETF HYG has had outflow for five consecutive months.
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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 47% (previous report: 53%) International equity ETF's enjoyed inflows of 32% of AuM (35%) US equity ETF's grew by 22% (20%) of AuM Inflows into speculative bond ETF's slowed to 8% of AuM (23%), while investment grade ETF's grew by 7% (10%) Flows into precious-metal related ETF's slowed to 4% (9%)
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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) and TIP (Treasury inflation-protected bonds) continue to suffer outflows The enthusiasm for BND (total bond market) and LQD (investment-grade corporate bonds) has cooled off further 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 High-yield ETF (HYG) has seen consecutive outflows for the last five months 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 VTI, SPY and IVV are accelerating as indices are near all-time highs.
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Observations: In good times, investors feel confident and venture abroad in search of higher returns Increased risk appetite is evident in the brisk growth of emerging market equity ETF's (VWO, EEM), while broad international equity ETF (EFA) is lagging behind.
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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)
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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 is at (or close to) 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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