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July ETF Update

Submitted by Tyler Durden on 08/18/2010 18:43 -0400

According to the most recent Powershares ETF update total assets in U.S.-listed ETFs were up 6.0% in July, or $51.7 billion, to $825.1 billion. Total ETF assets are up $32.4 billion since the beginning of the year (4.0%) which is greater than the 1.2% decline in U.S. equities and the 3.2% decline in global equities. Looking at flows, investors added a total of $9.2 billion into ETF in July. For the year, ETFs have seen net inflows of $48.5 billion. This roughly offsets a comparable number in mutual fund outflows YTD, which according ot ICI is approximately $50 billion. Oddly enough, the two of the most popular ETFs in the world, the SPY and the GLD, both saw material net outflows in July (-$1.9 billion and -$1.4 billion, respectively). On the flipside, the funds seeing the largest inflows were the Vanguard Emerging Markets (+$2.0 billion), and the IWM, also at +2.0 billion. Not surprisingly, the strategy with the biggest inflow by investment objective was Fixed Income, with $5.1 billion in inflows in June, followed by Global Region/Country at $4.7 billion, and US Sector/Industry with $1.6 billion of inflows. On the other end, Commodity, US Style and US Market Cap ETFs saw the largest ouflows (-$1.5 billion, $0.9 billion, and -$0.4 billion).

Chart 1 - ETF Assets and net flows by provider

Chart 2 - Fund flows by investment objective

Chart 3 - 10 ETFs with largest inflows:

Chart 4 - 10 ETFs with largest outflows:

Some other observations:

Mutual fund managers use ETFs extensively within their own funds. This may come as a surprise given that ETFs often compete with traditional mutual funds. The liquidity, tax-efficiency, transparency and low-cost nature of ETFs,† however, has led many mutual fund managers to embrace the investment vehicle. Columbia Management Investment Advisers is the largest user of ETFs among mutual fund managers, followed by BlackRock, State Street and Wellington. The largest ETF positions within mutual funds are emerging market and U.S. equities.6 Columbia Management Investment Advisers holds nearly 11% of all of its assets in ETPs across 596 different funds.

Over 25 different pension funds for some of the largest states and companies have begun using ETFs in their portfolios. The leader has been the Teacher Retirement System of Texas, which currently holds nearly $4 billion in ETFs providing exposure to emerging market equities, real estate, small-cap equities and commodities. Dow Chemical, U.S. Steel, IBM, DuPont and Exxon also use ETFs within their pension portfolios.

Many endowments have also begun using ETPs to gain exposure to various asset classes. Harvard University, which has one of the most respected and best performing university endowments is the leader within this group in its use of ETFs. Currently Harvard holds over $1.2 billion in emerging market equity ETFs. Harvard invests some of its assets in broad emerging market funds but uses single-country ETFs heavily to achieve more precise emerging market exposure. University of Texas, University of Notre Dame, Stanford University, the Massachusetts Institute of Technology and Yale University all use ETFs within their endowment portfolios.

And some very interesting observations on hedge fund holdings in ETFs, which have a net ($56) billion short position in ETFs: Hedge funds use ETFs for both long and short exposure. Collectively, hedge funds manage approximately $21 billion in long ETF positions and to around $77 billion in short ETF positions. Most of the long hedge fund exposure within ETFs is concentrated in commodity funds. In addition, some of the largest single positions in ETFs come from hedge funds. For example, Paulson & Co. has over $3.5 billion of gold exposure from one ETF.

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Wed, 08/18/2010 - 18:54 | 529249 Bear

So then short ETF + commodity ETF + emerging market ETF + bond ETF = No one left in equities

Wed, 08/18/2010 - 19:38 | 529312 bada boom

According to ICI, foreign equities funds are positive for the year as well, close to 25 billion ytd. It's just domestic funds that are negative.

Wed, 08/18/2010 - 20:47 | 529392 Dismal Scientist

The future is here. It means disaster for the traditional 'alpha generating' asset management business and the sell side that serve/leech off them/us. Reminds me of Wile Coyote just before he looks down having run off the cliff. Of course, it will take longer for the industry to look down, and there will be frantic reinvention along the way.

Gorman: Any questions?
[Hudson raises his hand]
Gorman: What is it, private?
Hudson: How do I get out of this chickenshit outfit?
Apone: You secure that shit, Hudson!

Wed, 08/18/2010 - 21:33 | 529476 count_zero

I've been wondering, reading the mutual fund outflow posts, where all that money was going. This makes sense and shows that the earlier doom-and-gloom "retail investers are leaving" story line was bunk. Investors are just moving to ETF's.

As far as alpha goes, the market has had too many managers for a long time and investors are (finally) beginning to realize they don't pay for themselves.

Wed, 08/18/2010 - 23:37 | 529635 Bankster T Cubed

so the Fed is monetizing via ETFs?

Thu, 08/19/2010 - 04:59 | 529815 dvsteenk

I certainly get the impression that stock price and investor sentiment manipulations are partially steered by ETF price movements. Where futures are supposed to be telling us in advance where markets are heading as an integrated result of all up/down expectations (which no longer seems to be the working mechanism), ETF's are supposed to track market movements. Yet, in many instances, ETF's seem to move ahead of the subsequent market movement, suggesting that the market follows the tracker. Short ETF's move down, regular ETF's move up or remain up before markets move up. I know there is a tracking error and that people putting money in ETF's also must have some gut feeling, but still this smells like someone is trying to push underlying assets of ETF's in a certain direction.

Is that plausible, i.e. that price movements in ETF's might dictate in which direction the price of the underlying assets move? Or, like in futures, that they are used to influence investor sentiment, like in "hey, that ETF is rising, let's buy some stock"?

Wed, 08/18/2010 - 23:41 | 529642 Bankster T Cubed

Fixed Income and Commodity ETFs account for 31 of the 48 billion net inflows YTD

Thu, 08/19/2010 - 04:00 | 529782 zhaowei

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Thu, 08/19/2010 - 06:16 | 529844 Lighty

As posted before, fixed income absorbed 50% (25 on 48 b) of all the inflows, and commodities another 12%. The bulk of stok investing went to EM, leaving to US equities just around 8 b (17%).

So, I'd say this confirms how people is shunning the US stock market; since when the US falls down it pulls everything else with it, and inter-correlations are at historical heights, this is bearish for everyone and everything, no matter what.

Thu, 08/19/2010 - 06:44 | 529854 Lets Hang Parliament

This massive use of ETFs must have some effect on the .8 plus correlation of equities dont you think?

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July ETF Update

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