Where's Investor Money Heading?

In the table below, we look at the change in DJ STOXX 600 sector ETF assets under management over the year from end-April 2008 to end-April 2009. Figures are taken from the Deutsche Bank ETF Liquidity Trends publication, and the sector ETF assets reflect the combined funds under management of all ETFs tracking the given sector. In the final column, we adjust asset figures for the change in market levels over the period, to give an indication of investor cash flows.

When measured in absolute terms, only three sectors show an increase in ETF assets for the year from end-April 2008 to end-April 2009 - banks, personal and household goods and real estate. The banking sector is the standout in terms of asset flows, with ETFs almost doubling their size over the year, despite a fall of over 50% in the index. When the assets under management figures are adjusted to reflect the impact of equity market declines over the period, 14 out of the 19 sectors show net ETF inflows over the year in review.

The biggest investor inflows were seen by ETFs tracking the DJ STOXX 600 banks index, followed by basic resources ETFs. The technology and telecommunications sectors were the biggest net losers in terms of investor assets. However, according to Manooj Mistry at db x-trackers, his firm has seen significant creations in the long technology sector ETF since the end of March. The other notable recent increase in sector ETF assets at db x-trackers include both long and short (inverse) versions of the DJ Stoxx 600 banks fund.

Taking a longer-term view of fund flows, research from Barclays Global Investors shows that 12-month rolling net asset flows to European sector ETFs have remained positive since mid-2006, despite the equity bear market, even if the rate of inflow has decreased from a peak registered in 2007. Total pan-European sector ETF assets are now around €4 billion, down from a maximum of over €6 billion in late 2007.

Summary

A review of sector-based equity ETF returns shows that the biggest decliners during the bear market have been leading the recent share price rebound. Opinions are divided on the way forward: plenty of bullish calls have been heard over recent weeks, while the more pessimistic point to the size and duration of previous bear market rallies as a sign that the current rebound may be reaching its end. Meanwhile, investor inflows to sector-based ETFs have continued over the last year, with banks the biggest recipient of new funds.

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