The January effect and increasing investor confidence helped to drive Exchange Traded Funds (ETFs) and Exchange Traded Products (ETPs) assets in the United States to a new record high of $1.42 trillion at the end of January 2013. ETF and ETP assets have increased by 5.5% from $1.35 trillion to $1.42 trillion during January.
Market performance contributed to the increase in the value of assets held in ETFs and ETPs as 18 of the top 20 markets globally showed gains in January. Two of the markets with strong gains were the U.S. and the UK, where history has shown that a strong January tends to be a good predictor for the rest of the year. A review of history in both markets shows that strong January performance is typically followed by positive returns in the subsequent 11 months.
The S&P 500 index was up 5.0% in January, which ranked as the 12th best January since 1950, and the 19th January since 1950 when the index was up more than 4%. Again, since 1950, January gains of at least 4% in the S&P 500 have been followed on average by gains of 15.1% in the subsequent 11 months of the year. Only once since 1950 did the S&P 500 rise by more than 4% in January and then finish the year lower than it did at January's end -- and that was in 1987.
Investors allocated $29 billion of net new assets to equity ETFs and ETPs listed in the United States in January. This is a continuation of the trend started in December 2012, when $28.6 billion of net new assets were allocated to equity ETFs and ETPs. During January, fixed income ETFs and ETPs gathered just $76 million, and commodity ETFs and ETPs had net outflows of $615 million.
Equity focused ETFs and ETPs providing exposure to North American equities have been the most popular, receiving $13.8 billion, followed by emerging market equities with $7.4 billion, and global (ex-U.S.) equity exposure with $3.0 billion. In the chart below, we rank the top 20 ETFs listed in the U.S. based on net new inflows in January. These top 20 ETFs have collectively gathered $18.557 billion in net new assets. Nineteen of the top 20 ETFs track equity indices, while one provides exposure to a commodity index.
The flows into the equities show investors' risk appetite is increasing as investors are feeling more confident as global economic concerns over corporate earnings, the U.S. debt ceiling, the U.S. housing market, the U.S. job outlook, and the outlook for the eurozone seem to be improving. There are signs of a rotation out of fixed income into equities.
Top 20 ETFs in the United States based on net inflows in January 2013:
Name | Ticker | Assets | ADV | NNA |
iShares MSCI Emerging Markets Index Fund | (EEM) | 52,126 | 2,269.9 | 3,370 |
PowerShares QQQ Trust | (QQQ) | 32,801 | 2,364.3 | 1,583 |
Vanguard MSCI Emerging Markets ETF | (VWO) | 61,432 | 856.3 | 1,380 |
Vanguard US Total Stock Market ETF | (VTI) | 26,713 | 180.8 | 1,132 |
WisdomTree Japan Total Dividend Fund | (DXJ) | 2,453 | 92.7 | 1,071 |
Vanguard Dividend Appreciation ETF | (VIG) | 13,780 | 88.6 | 1,036 |
Vanguard REIT ETF | (VNQ) | 16,943 | 166.6 | 979 |
iShares MSCI EAFE Index Fund | (EFA) | 41,802 | 908.6 | 922 |
ProShares Ultra Russell2000 | (UWM) | 926 | 60.5 | 735 |
Vanguard S&P 500 ETF | (VOO) | 7,634 | 121.9 | 686 |
Vanguard Value ETF | (VTV) | 8,157 | 66.9 | 685 |
Vanguard European ETF | (VGK) | 6,052 | 99.8 | 653 |
FlexShares Morningstar Global Upstream Natural Resources Index Fund | (GUNR) | 1,416 | 30.8 | 617 |
iShares Russell 2000 Index Fund | (IWM) | 18,188 | 3,210.6 | 596 |
Financial Select Sector SPDR Fund | (XLF) | 10,392 | 794.7 | 590 |
Technology Select Sector SPDR Fund | (XLK) | 8,969 | 256.4 | 554 |
Materials Select Sector SPDR Trust | (XLB) | 3,046 | 305.2 | 499 |
Guggenheim S&P Equal Weight ETF | (RSP) | 3,855 | 50.9 | 499 |
Vanguard FTSE All-World Ex-US ETF | (VEU) | 9,136 | 62.7 | 485 |
iShares S&P MidCap 400 Index Fund | (IJH) | 15,066 | 112.6 | 484 |
Source: ETFGI US ETF and ETP industry insights report January 2013, ETFGI, ETF/ETP Providers, Bloomberg
Fixed Income ETFs and ETPs gathered only $76 million, with $756 million going into high yield exposure and $371 million into inflation linked ETFs and ETPs, while government, emerging market, mortgage-backed and broad/aggregate bond exposures experienced net outflows of $1.2 billion, $263 million, $201 million and $153 million, respectively.
Commodity ETFs and ETPs had net outflows of $615 million. Products offering exposure to precious metals had new outflows of $1.3 billion, and energy ETFs and ETPs had net outflows of $379 million, while broad commodity ETFs and ETPs gathered net inflows of $900 million.
In January, the top 20 ETPs collectively gathered $1.864 billion in net new assets. Twelve of the top 20 ETPs were tracking commodity indices, while 4 provided exposure to alternative asset class indices, and 2 to equity indices.
Top 20 ETFs in the United States based on net inflows in January 2013:
Name | Ticker | Assets | ADV | NNA |
iPath S&P 500 VIX Short-Term Futures ETN | (VXX) | 1,116 | 762.2 | 373 |
iShares Silver Trust | (SLV) | 10,733 | 353.1 | 336 |
PowerShares DB Commodity Index Tracking Fund | (DBC) | 7,059 | 58.8 | 272 |
ProShares Ultra VIX Short-Term Futures | (UVXY) | 180 | 163.8 | 174 |
iShares Gold Trust | (IAU) | 11,809 | 104.2 | 161 |
ProShares UltraShort DJ-UBS Crude Oil | (SCO) | 152 | 29.0 | 79 |
PowerShares DB Agriculture Fund | (DBA) | 1,705 | 25.5 | 50 |
CurrencyShares Euro Trust | (FXE) | 276 | 84.3 | 45 |
iPath Dow Jones-UBS Coffee Subindex Total Return ETN | (JO) | 105 | 6.2 | 45 |
ProShares VIX Short-Term Futures ETF | (VIXY) | 156 | 15.6 | 44 |
E-TRACS Alerian MLP Infrastructure Index | (MLPI) | 592 | 4.3 | 42 |
VelocityShares Daily 2x VIX Short Term ETN | (TVIX) | 112 | 22.2 | 41 |
PowerShares DB Crude Oil Double Short ETN | (DTO) | 70 | 8.5 | 34 |
iPath Seasonal Natural Gas ETN | (DCNG) | 77 | 0.4 | 28 |
iPath S&P MLP ETN | (IMLP) | 28 | 0.1 | 27 |
CurrencyShares Australian Dollar Trust | (FXA) | 610 | 19.2 | 26 |
Gold Shares Covered Call ETN | (GLDI) | 25 | 0.1 | 25 |
PowerShares DB Base Metals Fund | (DBB) | 337 | 6.3 | 22 |
iPath Dow Jones-UBS Grains Subindex Total Return ETN | (JJG) | 133 | 3.9 | 20 |
ETFS Physical Palladium Shares | (PALL) | 544 | 7.3 | 19 |
Source: ETFGI US ETF and ETP industry insights report January 2013, ETFGI, ETF/ETP Providers, Bloomberg
We expect 2013 to be another good year for ETFs and ETPs as a growing number of institutional investors, financial advisors and retail investors are embracing the use of ETFs and ETPs for strategic and tactical asset allocations.
Disclosure: I am long VWO in my IRA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article
