By Drew Voros
After July saw more than $53 billion in new assets flow to ETFs, August followed suit with another strong month, with nearly $30 billion of inflows, with equity ETF gathering the lion’s share of new money.
In aggregate, August asset flows were solid, if much smaller than July’s $52 billion intake. So far this year, the U.S. ETF industry has gathered a net of $143.2 billion in fresh assets, in line with last year’s asset growth.
When it comes to ETF flows in 2016, it really has been a tale of two trends. For the first half of the year, fixed-income ETFs dominated, with more than 80% of new assets going to that asset class.
However, since July 1, or really the week after the “Brexit” vote succeeded at the end of June, not only has the amount of new money to ETFs picked up dramatically, there’s been a shift an investor sentiment to broad equity ETFs from fixed income, or as some market narratives paint it: from risk-off to risk-on.
Investors poured a net of $28.5 billion into U.S.-listed ETFs in August—the second-strongest month for ETF creations so far in 2016—and almost half of those assets landed in U.S. equity funds.
Risk-type assets such as U.S. and international equity ETFs are increasingly popular. In August, the two most popular equity sectors were financials and energy, capturing $1.4 billion and $1.1 billion, respectively. Technology, too, was finally in the black after three months of net outflows, according to FactSet data. These aren’t defensive-type sectors.
Demand For Emerging Market ETFs
Another clear indication of a growing appetite for risk was inflows into emerging market ETFs, which attracted nearly $5 billion in the month.
The most popular ETF in August was the iShares MSCI Emerging Markets ETF (EEM), raking in a net of $2.2 billion, bringing its year-to-date net asset gains to $6.7 billion.
Currency-Hedged ETFs Falling Out Of Favor
The once-hot WisdomTree Japan Hedged Equity ETF (DXJ) continues to be the target of asset losses as investors trim exposure to Japan and currency-hedged strategies in general in the face of dollar weakness, among other things.
In August, DXJ bled $1.1 billion in assets—the month’s biggest net redemptions of any ETF—putting its year-to-date asset losses at $5.6 billion.
The only ETF that has been less popular than DXJ so far in 2016 is the WisdomTree Europe Hedged Equity Fund (HEDJ), which has now lost $6.8 billion to net redemptions in 2016.
The two ETFs have now lost more than $12 billion in asset outflows for their issuer, WisdomTree—a firm whose name has become synonymous with currency-hedging and dividend-focused methodologies.
August Hot Month For Closures
August 2016 has to be one of the biggest months for fund shutdowns, with a total of 41 ETFs being taken off the market. Another batch of closures for September was announced during August as well.
The month kicked off with the closure of the Calamos Focus Growth ETF (CFGE) on Aug. 1. Then there were nine closures of UBS-sponsored ETNs on Aug. 16 and 18. On Aug. 23 and 24, iShares and State Street Global Advisors closed a total of 23 funds, some of which had fairly significant assets. And on Aug. 25, ProShares shut down nine ETFs, including six inverse exposure funds and three leveraged funds.
Another dozen fund closures were announced in August, with the funds set to trade for the last time in September. Through the first seven months of 2016, there were 40 ETF closures, almost as many as occurred in the entire month of August. If you include the ETFs that are already expected to close in September, we will see at least 93 closures for the first nine months of the year.
Drew Voros can be reached at firstname.lastname@example.org.
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