By Drew Voros
Investors Pour Money into Risk-Aversion ETFs
With February ending and giving us two months in the books for the year, flows from the month are giving investors a clear trend for the year: Investors are embracing risk-aversion ETFs.
Most prominently is that investors are developing an aversion to risk, instead gravitating to gold ETFs, a complete reversion of sentiment from the last few years. In addition, long-dated Treasury funds are falling into favor in what was supposed to be a rising-rate environment, bearish for these ETFs.
The SPDR Gold Trust (GLD) and the iShares Gold Trust (IAU) saw combined inflows of $4.5 billion in the month as the yellow metal has been rallying into bullish territory. Gold has climbed 21% since mid-December, breaking the 20% threshold defining a bull rally.
Long-dated Treasury bond ETFs saw more than twice the flows of the gold funds, as investors poured nearly $9 billion into bond ETFs such as the iShares 20+ Year Treasury Bond (TLT), the iShares 3-7 Year Treasury Bond (IEI) and the iShares Core U.S. Aggregate Bond (AGG).
Following the same risk-aversion theme, demand for defensive-type ETFs such as the minimum-volatility strategy, the iShares MSCI USA Minimum Volatility (USMV), as well as for a utilities fund, the First Trust Utilities AlphaDex (FXU), was strong.
For February, equity funds as a group saw $12 billion in outflows last month. For ETFs overall, February saw net inflows of $2.7 billion, but equity funds registered $12 billion in outflows. There is now more than $2.03 trillion in assets for U.S.-listed ETFs. Oddly, despite the selling of equity ETFs, the Vanguard Total Stock Market (VTI) proved to be the exception, with nearly $800 million of inflows.
iShares suspends shares Of IAU
The demand for gold proved to have a material impact on a particular gold ETF last week. The issuer of the iShares Gold Trust (IAU), iShares, said Friday it had suspended creations of the ETF because strong demand in the fund had led to "temporary exhaustion of IAU shares." After February saw the strongest inflows in 10 years into the fund, iShares suspended creations as it works to register new shares with the Securities and Exchange Commission.
Because IAU is an exchange-traded commodity registered under the '33 Act as a grantor trust, it must register with the SEC when it wants a new subscription of shares. However, rival ETF SPDR Gold Trust (GLD) saw four times as much inflows, and despite also being the same structure, has been functioning as normal.
"We actively monitor our creations and redemptions to see that GLD’s registered shares are not exhausted," said Peter Tulupman, head of U.S. Communications for the World Gold Council.
Notable ETF Launches
Vanguard and Goldman Sachs add to smart beta ETFs
In 2015, Vanguard launched only one new ETF. This past week, the issuer launched two new funds that delve deeper into the “smart beta” space. The Vanguard International Dividend Appreciation ETF (VIGI) and the Vanguard International High Dividend Yield ETF (VYMI) target an area Vanguard has not ventured in before: international dividend-paying equities. VIGI has a 0.25% expense ratio while VYMI will charge 0.30%
Goldman Sachs added to its new and growing suite of smart-beta ETFs, or what it called ActiveBeta, with the Goldman Sachs ActiveBeta Europe Equity ETF (GSEU) and the Goldman Sachs ActiveBeta Japan Equity ETF (GSJY). They will join three other funds that are based on the same methodology targeting value, momentum, quality and low-volatility factors. The funds are: the Goldman Sachs ActiveBeta Emerging Markets Equity ETF (GEM); the Goldman Sachs ActiveBeta International Equity ETF (GSIE); and the Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (GSLC).
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