US ETF flows: Precious metals lose their lustre

Jan 12th, 2012 | By | Category: Commodities

According to a study of US ETF flows, inflows reached $18.8 billion in December, roughly four times the inflows seen in November, to close out 2011 with inflows of $121.4 billion for the year.

Precious metals ETFs lose their lustre

Commodities ETFs – primarily precious-metals offerings – had the greatest outflows of any asset class in December. SPDR Gold Shares alone saw outflows of $2.2bn.

The study, carried out by Morningstar, shows that despite the fact that the S&P 500 spent half of December in the red and returned a mere 0.41% for the month, US-stock offerings led all ETF asset classes with inflows of about $14.7 billion.

Highlights from the study include:

Taxable-bond ETFs, with inflows of $5.7 billion, had the second-highest inflows among the broad ETF asset classes in December. Taxable-bond offerings haven’t seen an aggregate monthly outflow in the last 12 months.

Commodities ETFs – primarily precious-metals offerings – had the greatest outflows of any asset class in December. SPDR Gold Shares ETF (GLD) alone saw outflows of $2.2 billion.

Of the 26 ETFs with an annual yield of at least 5% and holding more than $100 million in assets, 92% had inflows in 2011, typifying the search for yield common in today’s low interest rate environment. iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and SPDR Barclays Capital High Yield Bond ETF (JNK) collected $2.9 billion and $923 million in December, respectively.

The dominance of iShares, which has long reigned as king of the ETF universe, may be waning. The firm’s market footprint has dropped to 42% from around 50% in 2009, reflecting the increased competition among ETF providers.

SPDR S&P 500 ETF (SPY) ($4.9 billion), iShares Russell 2000 Index ETF (IWM) ($1.4 billion), iShares MSCI EAFE Index ETF (EFA) ($1.0 billion), SPDR Barclays Capital High Yield Bond ETF (JNK) ($923 million), and Market Vectors Oil Services ETF (OIH) ($907 million) made up the list of ETFs with the largest monthly inflows in December.

December reflected a trend seen throughout 2011

In a separate study looking at ETF usage among US-based investment advisers, ETFs tracking domestic fixed income and equities were the destination for 87 percent of net ETF flows in 2011.

The study, conducted by Charles Schwab, corroborates much of the Morningstar report. It shows that domestic fixed income captured 54 percent of ETF inflows in 2011, and equities saw 33 percent of flows, while ETFs tracking international equities and commodities – and gold in particular – saw their share of inflows fall.

The study reports that ETF trade volume among independent advisers was up 26 percent during the eleven months to 30 November 2011, and suggests that the appetite for ETFs among independent investment advisers continues unabated into 2012.

“Advisers large and small see real client benefits in ETFs’ low-cost structure and flexibility, as they can make tactical adjustments to portfolios in changing markets,” said Beth Flynn, vice president of ETF platform development at Charles Schwab.

Key findings from the Charles Schwab report include:

  • Asset inflows to gold ETFs dropped by more than half; other precious metals experienced significant outflows in 2011.
  • Overall flows into ETFs declined from 2010, due largely to assets leaving international funds.
  • Advisers increased their ETF assets in separately managed accounts by 30 percent in 2011.
  • Intermediate and long-term bond ETFs captured 39 percent of adviser fixed income ETF flows; shorter maturity bond ETFs ranked second at 26 percent.
  • Although they stayed positive, flows into ETFs tracking alternative assets declined by more than 50 percent overall; ETFs tracking commodities saw a 77 percent decline in flows.
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