5 ETFs Popular with Investors Right Now

The contrarian in me is skeptical. After all, money is pouring into various commodity and emerging market investments faster than record keepers can calculate.

Top 5 ETF Inflows (in millions) for June 2009
Fund	Ticker	June Inflows	YTD Flows	Net Assets
US Natural Gas	(UNG)	$1,698	$3,428	$3,708
iShares Barclays TIPS	(TIP)	$942	$4,959	$14,163
Vanguard Emerging Markets	(VWO)	$777	$2,278	$9,345
SPDR Retail	(XRT)	$709	$591	$976
iShares S&P 500	(IVV)	$642	$2,229	$18,351

Then again, it's hard to be surprised by the interest in natural gas. So many writers, including yours truly, have pointed to a variety of anomalies with respect to natural gas prices. And with $1.5 billion new dollars entering US Nat Gas (UNG) in June alone, a figure that is close to 50% of the fund's total assets, there's a lot of money riding on the idea that "nat gas" has to go higher.

Interestingly enough, though, even with a 24% YTD increase in net assets for Vanguard Emerging Markets (VWO), and an 8% increase in June, some of the emerging market shine may be wearing off. The iShares Emerging Market Fund (EEM) experienced the largest dollar outflow of any ETF, with $1.7 billion leaving EEM. (Note: Percentage-wise, however, it was closer to a 5% exodus.)

The popularity of iShares TIPS (TIP) is fairly predictable. Advisers view it as a straight-forward, asset allocation tool to hedge against inflation and pick up a bit of income.

For the most part, in fact, the fund flows seem to represent a trickling in of sidelined dollars to asset allocation positions. The S&P 500 (IVV), Vanguard Emerging Market (VWO), and TIPS (TIP) all represent the type of core positions a portfolio constructor might utilize.

The outliers are another story. While it may not be difficult to ascertain interest in nat gas via UNG, it's a great deal more challenging to understand June 09 intrigue in Retail (XRT). Nevertheless, I'll take a stab at it.

June inflows for Retail (XRT) jumped $700 million, or 70% of the fund's net assets. March, April and May had seen a rebound in Consumer Confidence going into to June, and expectations for Consumer Confidence in June was that the measure would rise. Moreover, going into the month, Retail (XRT) was one of the year's top performers.

In essence, then, XRT was a momentum play. Unfortunately, as June began to wear on, consumer discretionary stocks were socked much harder than the broader market. Adding insult to injury, recently released Consumer Confidence numbers fell in June. Note: I tend to doubt that July ETF flows will be as robust for Retail XRT as they were this past month.

Full Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company may hold positions in the ETFs, mutual funds and/or index funds mentioned above.

Comments

[donzelion:]

It's hard to understand why anyone would stick with EEM v. VWO. The fees are 3x as high, the distribution is 2% for EEM v. 3.6% for VWO, the correlation between the two is extremely tight, but VWO is more broadly diversified.

While I'd like to do an apples-to-apples comparison of their specific holdings at the same time frame, reviewing the industry diversification shows around 1-2% divergence on various sectors and countries, but it's hard for me to see how such modest differences would add up to outperformance (and certainly how the outperformance would make up for the fees).

EEM is a relic - long live VWO (but actually for me, I prefer fundamentals and dividend weighted alternatives for the emerging markets only - DEM seems more appropriate in environments where the smoke and mirrors are even more prolific than in the States, and where consistent cash payouts are the best reliable proof of a company's bona fide capabilities).

Jul 08 08:57 AM