ETF Asset Report for First Half of 2013: Japan Wins, Gold Loses - ETF News And Commentary

While the ETF industry has hauled in plenty of money so far in 2013, riding on the uptrend in developed markets such as the U.S. and Japan, total asset creation slackened from the year-ago level. Per the data from IndexUniverse , the biggest declines came from dampened investor interest towards physical assets and emerging market ETFs .

In such a scenario, we pick the top-and-bottom five asset generators in the first half of 2013. Japan-based funds along with the U.S. financial sector ETF were the star performers in terms of asset gathering in the first half, but in particular, these five saw the most inflows:

Top Gainers in 1H13 ($, Million)

Ticker Fund 1H13 Inflows AUM ($, M)
DXJ WisdomTree Japan Hedged Equity 8,127.5 9,936.0
EWJ iShares MSCI Japan 4,938.3 10,938.2
XLF Financial Select SPDR 3,412.3 14,446.1
IVV iShares Core S'P 500 3,277.53 42,943.5
BSV Vanguard Short-Term Bond 3,238.1 12,404.1

*Source: Indexuniverse

Top Winners and Why

On the other side of the world, Japan's target of 2% inflation backed by an easy monetary policy sent Japanese stocks on a six-month-long rally which had suffered low growth and deflation for a long time.

The pace of inflow into Japanese stock ETFs this year is already more than double the levels seen in 2012 and 2011. However, June has seen significant volatility (and losses) for the Japanese equity market which may lead to a trend reversal in the second half asset report (Read: Winning ETF Strategies For the Second Half ).

In the entire first half though, the WisdomTree Japan Hedged Equity ( DXJ ) tracking the Japan Hedged Equity Index was the top asset gatherer, pulling in around $8.3 billion and amassing around $9.9 billion. Since the beginning of the year, Japan was a top market although the Japanese equities lost their winning momentum at the onset of the second half, owing to firmness in yen against the US dollar in the first week of June.

With as many as 315 stocks in its holdings, DXJ charges 48 bps in fees. The fund has considerable exposure in Industrials, Consumer Discretionary and Information Technology (Read: DXJ--Best ETF to Play the Japan Rally ).

Another Japan-oriented fund, the iShares MSCI Japan Index Fund ( EWJ ) took the spot of the runner-up which accumulated $4.9 billion assets in the last six months to reach a total of $10.9 billion.

In the entire first half, the SPDRFinancial Select Fund ( XLF ) - the third most popular ETF for inflows - saw fresh capital of around $3.4 billion. This fund tracks the SPDR Financial Select Sector Index. XLF manages an asset base of around $14.4 billion and charges 18 bps in fees and expenses.

Part of the reason for this surge in interest has been the soaring financial sector this year. Banks have shown an impressive comeback following a series of hedging losses and scandals, surging almost 200% over the span of last four years.

This outperformance was attributable to sound balance sheets, an uptick in mortgage activity, and lower loss provisions. In such a scenario, XLF was a good bet for investors thanks to a low expense ratio.

Another ETF, iShares Core S&P 500 Fund ( IVV ) was among the top winners in the first half, as $3.3 billion flocked into the fund. The S&P 500 Index is considered the mirror image of the broader U.S. equity market and we know the U.S. equities market has displayed great resilience recently, despite significant global headwinds.

The fifth spot goes to the Vanguard Short-Term Bond ( BSV ), which gained money owing to its less interest rate sensitivity/shorter duration profile amid a rising rate scenario (Read: Buy These ETFs to Profit from The Great Duration Rotation ).

Top Losers

Discussed below are the products investors avoided in the first half of 2013. The table lists funds which lost assets considerably during the said period.

Biggest Losers 1H13 ($, Million)

Ticker Name Outflows AUM ($, M)
GLD SPDR Gold -18,175.30 37,137.6
EEM iShares MSCI Emerging Markets -8,189.07 34,935.12
TIP iShares Barclays TIPS Bond -4,707.49 16,011.71
SPY SPDR S&P 500 -4,551.56 133,335.51
LQD iShares iBoxx $ Investment Grade Corporate Bond -4,393.89 19,463.22

*Source: Indexuniverse

The SPDR Gold Shares ( GLD ) tracking Gold Bullion saw around $18 billion in outflows and stood at $37.1 billion at the end of the first half of 2013. The product has been beaten down significantly since the beginning of the year thanks to a number of factors.

Growing optimism surrounding the U.S. economy and some remedial measures taken in the Euro zone shifted investors' attention from physical asset ETF to equity markets (Read: Have We Seen the Bottom in Gold ETFs? ).

iShares MSCI Emerging Markets ( EEM ) fund tracking the MSCI Emerging Markets Index, saw asset drainage of about $8.2 billion to $34 billion in the initial half of 2013. Focus on domestic recovery along with concerns of slower growth in some emerging markets like China, Brazil and India might have resulted in assets gushing out of the fund.

After that comes the iShares Barclays TIPS Bond ETF ( TIP ) which witnessed $4.7 billion worth of redemptions. These instruments are primarily aimed at generating real returns by protecting a fixed income portfolio from inflation risk.

However, with the higher yields on the U.S. Treasury 10-year note (2.63% as of July 10th, 2013, compared with 1.68% at the end of April), and the lack of an increase in inflation risks, investors might have turned their focus away from the TIPS bond for now (Read: Long-Term Treasury Bond ETF Investing 101 ).

iShares iBoxx $ Investment Grade Corporate Bond ( LQD ) shared the same fate. Investors are beginning to limit their bond ETF purchases as worries are creeping over bigger losses in this corner of the market, pushing investors into ultra-low duration securities, or even equities, for better exposure.

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WISDMTR-J HEF (DXJ): ETF Research Reports

ISHARS-EMG MKT (EEM): ETF Research Reports

ISHARS-JAPAN (EWJ): ETF Research Reports

SPDR-GOLD TRUST (GLD): ETF Research Reports

ISHARS-TIPS BD (TIP): ETF Research Reports

SPDR-FINL SELS (XLF): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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