{"id":119,"date":"2016-09-07T10:12:16","date_gmt":"2016-09-07T14:12:16","guid":{"rendered":"https:\/\/www.etfresearchcenter.com\/articles\/?p=119"},"modified":"2016-09-07T10:12:16","modified_gmt":"2016-09-07T14:12:16","slug":"august-2016-fund-flows-investors-bet-on-emerging-markets","status":"publish","type":"post","link":"https:\/\/www.etfrc.com\/articles\/index.php\/2016\/09\/07\/august-2016-fund-flows-investors-bet-on-emerging-markets\/","title":{"rendered":"August 2016 Fund Flows: Investors Bet on Emerging Markets"},"content":{"rendered":"

Emerging Market ETFs\u2014both equities and fixed income\u2014were the big winners in the battle for assets in August. Among equity funds, developed markets captured 73% of all net flows[1]<\/a>, while emerging markets captured 27%. That\u2019s fewer absolute dollars being allocated to emerging markets, but that 27% is still nearly triple the category\u2019s \u00a09.7% slice of the iShares MSCI All Country World Index. Looked at another way, it represents a 4.0% increase in net ETF assets allocated to emerging markets for the month, compared with just a 0.9% increase for the larger developed markets category.<\/p>\n

The emerging market with the biggest increase in new funds wasn\u2019t one of the widely followed BRIC countries but rather Mexico: money flows added a whopping 10.6% to net ETF assets tracking that country\u2019s stocks. That said, we have a NEUTRAL recommendation on all the Mexico-related ETFs, including the Deutsche \u00a0X-trackers MSCI Mexico Hedged (DBMX<\/a>) and iShares MSCI Mexico (EWW<\/a>) funds. We\u2019re much more constructive on the broader iShares MSCI Emerging Markets fund (EEM<\/a>), on which we have an OVERWEIGHT recommendation.<\/p>\n

At the other end of the scale, Euro-zone countries dominated the list of those where investors pulled assets. Outflows from Germany were 2.6% of net assets, followed by Spain (2.5%), Italy (2.2%) and Belgium (1.8%). The big winner among developed markets was Canada, where net ETF assets tracking the country\u2019s stocks increased 5.8% to over $20 billion.<\/p>\n

In the fixed income space, money went looking for yields. Naturally, emerging markets were the big winner here too, with net ETF assets allocated to the space up by 6.1%. But that was followed closely by Preferred Stock funds, which saw an increase of 4.4.%. Meanwhile investors yanked money from low-yielding\u00a0Treasury ETFs (FIGURE 1).<\/p>\n

Figure 1:\u00a0Fixed Income Fund Flows<\/span><\/strong><\/p>\n

Net flows1<\/sup> as % of AUM, by category, August 2016<\/em><\/span><\/p>\n

\"fi_flows\"

Source: ETF Research Center and DTCC<\/p><\/div>\n

Among sectors, Financials and Technology together accounted for nearly half the total net inflows, while the only sector investors yanked money from was Utilities. Actually, investors didn\u2019t \u201cyank\u201d any funds from Utilities, but rather increased their bets on the short side. Within the Select Sector SPDR family, Utilities (XLU<\/a>) is now the most shorted sector, with short interest at 35% of shares outstanding up from 27% and the end of July 2016. Consumer Staples (XLP<\/a>) is the second-most shorted sector at 34% of shares outstanding (FIGURE 2).<\/p>\n

Figure 2: Short Interest as a Percentage of Shares Outstanding<\/span><\/strong><\/p>\n

Select Sector SPDR ETFs<\/em><\/span><\/p>\n

\"Source:<\/p>\n

Source: ETF Research Center and FactSet<\/p>\n

Overall we think the message from ETF flows during August was that investors embraced a \u201crisk-on\u201d mentality. The question, of course, is how long that will last.<\/p>\n

How long do you think the “risk on” trade will last?<\/em><\/p>\n

 <\/p>\n

[1]<\/strong><\/em><\/a> We measure \u201cnet flows\u201d instead of total money flows as a better gauge of investor sentiment. Net flows strips out the portion of ETF assets that are held as short interest. Authorized participants often create new ETF shares to meet demand for short sales. We believe it is misleading to characterize this inflow of funds as bullish; likewise it is misleading to view outflows that are simply the unwinding of short positions as bearish.<\/p>\n","protected":false},"excerpt":{"rendered":"

Emerging Market ETFs\u2014both equities and fixed income\u2014were the big winners in the battle for assets in August. Among equity funds, developed markets captured 73% of all net flows[1], while emerging markets captured 27%. That\u2019s fewer absolute dollars being allocated to emerging markets, but that 27% is still nearly triple the category\u2019s \u00a09.7% slice of the…<\/p>\n","protected":false},"author":2,"featured_media":121,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[19,18],"tags":[20,22,21,23,16],"class_list":["post-119","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-emerging-markets","category-fund-flows","tag-dbmx","tag-eem","tag-eww","tag-xlp","tag-xlu","description-off"],"_links":{"self":[{"href":"https:\/\/www.etfrc.com\/articles\/index.php\/wp-json\/wp\/v2\/posts\/119","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.etfrc.com\/articles\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.etfrc.com\/articles\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.etfrc.com\/articles\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.etfrc.com\/articles\/index.php\/wp-json\/wp\/v2\/comments?post=119"}],"version-history":[{"count":5,"href":"https:\/\/www.etfrc.com\/articles\/index.php\/wp-json\/wp\/v2\/posts\/119\/revisions"}],"predecessor-version":[{"id":140,"href":"https:\/\/www.etfrc.com\/articles\/index.php\/wp-json\/wp\/v2\/posts\/119\/revisions\/140"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.etfrc.com\/articles\/index.php\/wp-json\/wp\/v2\/media\/121"}],"wp:attachment":[{"href":"https:\/\/www.etfrc.com\/articles\/index.php\/wp-json\/wp\/v2\/media?parent=119"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.etfrc.com\/articles\/index.php\/wp-json\/wp\/v2\/categories?post=119"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.etfrc.com\/articles\/index.php\/wp-json\/wp\/v2\/tags?post=119"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}