Through the record outflows from
, an easy-to-forget bright spot shined through-namely very strong
inflows into U.S. equity strategies, according to Todd
Rosenbluth, an ETF analyst with S&P Capital IQ.
Rosenbluth told IndexUniverse.com Managing Editor Olly Ludwig
that the overall outflows came as investors began reconsidering
holdings of fixed-income and emerging market ETFs after the
Federal Reserve began to hint at a world free of quantitative
All the Fed-related market volatility will work itself out in
the coming months, said Rosenbluth, who sees more than enough
innovation and dynamism in the world of ETFs to make him believe
the quickening asset-gathering of recent years will quickly
IndexUniverse.com:What did you make of the record
outflows in June?
It was a tough period for ETFs. In particular, it was fixed-income
and emerging markets equities that bore the brunt. The issues are
largely related to potential changes in Federal Reserve policy, and
we think that will resolve itself in the coming months.
Do you see any other issues that were coursing through
The Fed was the main thing-concern in the fixed-income markets
about interest rates moving higher and in emerging markets concern
about interest rates and then signs of slower economic growth in
these emerging markets.
Are you of the mind that when a risk-on attitude again
takes hold that perhaps frontier markets are going to be taken
more seriously than they ever have been because they're more
mature now? I'm hearing that funds like the iShares MSCI Frontier
100 ETF (NYSEArca:FM) might get traction.
We at S&P like frontier markets over emerging markets in this
environment. We think there are better opportunities there. They
have been gathering assets as those benchmarks and respective ETFs
have done better, but they're just so much smaller than what you're
going to find in terms of an asset base than the Vanguard FTSE
Emerging Markets ETF (NYSEArca:VWO) and the iShares MSCI Emerging
Markets ETF (NYSEArca:EEM). The iShares Frontier Markets ETF has
about $200 million, and I think money is going to move there.
But I think that the $12 billion in total outflows we saw in
June masked some of the positive signs, such as U.S. equities ETFs.
This is still the dominant part of ETF investing:Combined in sector
and style ETFs, U.S. equities make up over 50 percent of the asset
base. We saw strong growth-around $5 billion in inflows-and not
just in financial services, which of course can benefit from a
We also saw growth in other sector ETFs:energy saw inflows; we
saw health care with inflows; we actually saw encouraging inflows
into small-cap equity ETFs. I say "encouraging" because that's a
domestic risk-on trade, and small-caps tend to be less interest
rate sensitive because there's less debt for a lot of these
companies and they tend to be more domestically focused than
large-cap stocks that have more of an international focus.
What's the biggest surprise for you in 2013 so far in the
We've seen ETF providers continue to find new ways to slice the
marketplace. We have seen some closures this year-in particular,
Guggenheim closed a number of its smaller ETFs. And we've a lot of
new fixed-income ETFs, both in the range of target maturity from
iShares, to more senior loan and high-yield portfolios that were
launched at a more risk-on time.
We've also continued to see investors overall move money into ETFs
that have rules-based tactical slants to them. I'm not surprised by
it, but I'm encouraged by it, because it shows there's still room
for innovation in this industry despite the outflows we saw in
June. It makes us feel optimistic about the industry's growth
In terms of closures, we're still seeing net increases in the
base, and that's a sign that even though we're seeing some
closures, we're still seeing innovation. The net number of products
is higher this year than it was last year, and the number of net of
launches and closures is still positive. The pace has slowed in the
last couple of years, but it's still positive despite maturation in
Apart from the net launch figures, any observations about
launches this year versus last year? To stoke your memory,
iShares flooded the zone early in 2012 with a lot of launches,
then everybody's guns went quiet for a while …
…Then it picked up toward the end of the year. Yes, I recall that
as well, and as I look through what has launched this year, I see a
number of taxable fixed-income ETFs launching from iShares and
others. I mentioned this, but they've launched their defined
maturity products-2016, 2018, 2020 and 2023. We've had a couple of
senior loan ETFs that have launched:First Trust launched one and
State Street launched one that follow the very successful launch of
(NYSEArca:BKLN) from PowerShares.
IU.com:The one from State Street, the SPDR Blackstone/GSO
Senior Loan ETF (NYSEArca:SRLN), is the active one that's been
doing quite well, right?
Yes, for a relatively new ETF, it's been gathering a good amount of
assets. It has almost $350 million in assets, and it launched three
months ago in April. That's a pretty rapid pace of asset-
What about in terms of looking ahead in the world of
ETFs-anything that's on your radar screen for the rest of the
year you wouldn't be surprised will come to pass, or that you
What we're still waiting to see is whether the next active ETFs are
going to come from traditional mutual fund companies. I don't have
a crystal ball as to when those will come to pass, but Fidelity has
gotten the green light to move forward, and we know of other mutual
fund companies that have expressed interest in offering ETFs.
And of course there's Pimco, which has had success with the
Total Return ETF (NYSEArca:BOND). Whether they continue to expand
their product pipeline in light of money moving out of their
flagship product and diversify is something I'm keenly interested
So do you feel like this big move into active by mutual
fund companies is going to happen, or might you be waiting for
I think we are going to see it; I just don't have a date in mind. I
do think Fidelity has made inroads, both from a staffing
perspective and in terms of its partnership with iShares that gives
all indications they're going to expand from their single-ETF
offering soon. How soon, I don't have a good sense, but if it's
going to be a fixed-income ETF as they've indicated, then the time
to launch will be when money is moving back into fixed-income ETFs.
You don't want to launch a product as money is moving out of an
I've heard a number of people say distribution will be
the next big wave of development in the ETF industry. The
pay-to-play arrangement that Schwab rolled out a while ago comes
to mind; the BlackRock-Fidelity partnership seems to be about
distribution as well. Any thoughts as to how important
distribution might be?
I think it's relevant for self-directed investors that are looking
for low-cost options. But for many investors looking for low-cost
options while working with a financial advisor who's on a platform
where that's not relevant, distribution is less important. We're
going to continue to see self-directed investors have options to be
able to find low-cost ways to invest.
But if anything concerns me, it's that investors are choosing an
ETF based on one data point, as opposed to a more holistic,
all-encompassing, what's-inside-the-portfolio and what's it going
to cost sort of approach. There are a number of firms that we work
with to provide third-party research to help self-directed
investors sort through the thousands of options, so that if they're
going it alone without an advisor, they're getting some assistance
in being able to sort through that universe.
Permalink | 'copy; Copyright 2009 IndexUniverse LLC. All rights
Don't forget to check IndexUniverse.com's ETF Data
2013 IndexUniverse LLC
. All Rights Reserved.