Cash Flows Into ETFs

• According to data from the National Stock Exchange, US-listed ETFs have experienced positive cash flows of over $29 billion in 2009, of which $17 billion occurred in the month of May.
• Traditional US equity ETFs experienced net inflows in May for the first month this year of $1.8 billion but YTD total outflows are still over $35 billion. The SPDR S&P 500 Index ETF (SPY) had net outflows of almost $30 billion so far this year. Other ETFs tracking broad-based US and International Indexes have had significant outflows.
• The trend out of emerging markets ETFs reversed in March and April and accelerated last month. In May, over $4.4 billion went into four ETFs investing in broad emerging markets and Brazil and China, bringing the YTD total to over $9.8 billion in these ETFs.
• Commodity ETF cash flows were over $18 billion so far this year but slowed in April and May. The biggest gainer was SPDR Gold, which took in $11.8 billion for the year, and is now the second-largest US-listed ETF, with over $35 billion in total assets. While interest in oil ETFs has slowed, the US Natural Gas ETF took in over $800 million in assets in May, bringing its YTD total inflows to $1.7 billion.
• Fixed-income ETFs had net inflows every month this year with another $4.1 billion in May, bringing YTD net inflows to almost $20 billion. In contrast to 2008, when investors were seeking high-quality and short-duration exposure, the biggest gainers in 2009 are investment-grade and high-yield bond ETFs. Through May, over $4.5 billion went into the iShares iBoxx Corp Bond ETF. Another $4.0 billion went into the iShares Barclays TIPS ETF, as some investors believe government stimulus will bring back inflation.
• Leveraged and inverse ETFs took in another $18.7 billion in new funds so far this year. Cash flows in these high-volume products show changes in investor sentiment. There were strong inflows into double- and triple -ong broad markets and financials ETFs in January and February. However, starting in March, new money went into short products as the markets rallied. In April and May, the biggest inflows in this segment were to the Direxion Financials Bear 3x ETF, which now has YTD inflows of over $4.5 billion.

Sources: National Stock Exchange data, IndexIQ research

Past performance does not guarantee future results.

Endnotes

1. Traditionally, hedge funds are seen as not being transparent since they typically do not provide investors with information relating to the holdings in their portfolios.

2. May 2009 Credit Suisse White Paper, “Global Macro – A Bridge Over Troubled Water.”

Paul Mazzilli is a senior adviser and member of the advisory board at IndexIQ, a developer of alternative investment products. He works with IndexIQ in connection with the firm's product development. Most recently, Mazzilli was director of Morgan Stanley's ETF research team. He was also responsible for overseeing Morgan Stanley's strategic equity portfolios and asset allocation models using ETFs.

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