February ETF Flows: Commodities Are Hot, Emerging Markets Are Not

by: Michael Johnston

February marked another month of growth for the U.S. ETF industry, though the pace of inflows slowed a bit from recent months. According to data from the National Stock Exchange, assets stood at $1.055 trillion at the end of February, an increase of about 3.5% over the previous month. February inflows totaled $7.4 billion, down slightly from the $10.3 billion that came in during January.

Commodities Heat Up, Emerging Markets Cool Off

Domestic equity ETFs saw inflows of nearly $3.6 billion in February after taking in nearly $10 billion the previous month. International ETFs saw a second straight month of outflows, reversing the trend of 2010. Commodity ETPs also enjoyed a surge in interest over the last month, thanks no doubt to a continued rally in natural resource prices. About $2.3 billion flowed into commodity funds, though many oil funds actually saw outflows (USO bled $180 million). The PowerShares DB Agriculture Fund (NYSEARCA:DBA) took in more than $500 million, while the iShares Silver (NYSEARCA:SLV) and gold (NYSEARCA:IAU) funds also raked in cash. The United States Natural Gas Fund (NYSEARCA:UNG), which lost more than 10% of its value on the month, saw inflows of more than $300 million.

After taking in huge amounts of assets in 2009, non-precious metals commodity ETFs lost some of their appeal last year and saw minimal inflows. Futures-based funds saw strong inflows in February, including the “contango killing” United States Commodity Index Fund (NYSEARCA:USCI). That fund took in about $165 million in cash flows, more than doubling in size on the month.

Emerging markets fell out of favor with ETF investors in February. The ETFs in the Emerging Markets ETFdb Category saw aggregate outflows of $4.6 billion on the month, while the Latin America Equities ETFdb Category bled more than $300 million. Some of the biggest monthly outflows were attributable to the Vanguard MSCI Emerging Markets ETF (NYSEARCA:VWO) and the iShares MSCI Emerging Markets Index Fund (NYSEARCA:EEM), which lost $1.4 billion and $2.4 billion, respectively. VWO, which recently cut expenses from 0.27% to 0.22%, now has a commanding lead over EEM in terms of assets; the Vanguard fund had $43 billion in AUM at the end of February compared to $36.6 billion for the competing iShares product. A year ago, EEM had $33.2 billion compared to $20.5 billion for VWO. Both funds seek to replicate the MSCI Emerging Markets Index.

In another closely watched head-to-head battle, the iShares COMEX Gold Trust (IAU) further narrowed the gap on the Gold SPDR (NYSEARCA:GLD). IAU saw inflows of about $340 million, while almost $700 million flowed out of GLD. Last summer iShares cut the expense ratio on IAU from 0.40% to 0.25%, and the fund has narrowed the gap to its much larger competitor in terms of assets ever since.

Vanguard Momentum Continues

Once again Vanguard led all issuers in inflows for the month, taking in more than $2.5 billion despite the big outflows from VWO. Blackrock also saw strong inflows despite big losses from its flagship emerging markets ETF, taking in $1.8 billion in February. The biggest outflows were experienced by State Street; SPY and GLD, the two largest U.S.-listed ETFs by assets, which saw close to $2 billion in aggregate outflows.

More than 20 ETFs saw February inflows equal to 100% or more of assets from the previous month. The U.S. Brent Oil Fund (NYSEARCA:BNO) grew from just $7 million in January to $37 million in February as investors sought out exposure to oil contracts. The WisdomTree Managed Futures Strategy Fund (NYSEARCA:WDTI), which debuted in January, grew from $20 million to $41 million during the month. The AdvisorShares Active Bear ETF (NYSEARCA:HDGE) saw assets jump from $13 million to $37 million.

Interest in Canadian equities also surged last month. The IQ Canada Small Cap ETF (NYSEARCA:CNDA) took in $63 million - or more than 100% of the fund’s assets at the end of January.

Feb ’09 Feb ’10 Jan ’11 Feb ’11
% ETFs With AUM > $100M 38% 48% 50% 51%
% ETNs With AUM > $100M 8% 15% 16% 18%
Source: NSX.com

At the end of February, 51% of ETFs and 18% of ETNs had at least $100 million in AUM. That metric increased modestly from January, and has jumped by 3% over the last year. Two years ago, just 38% of U.S.-listed ETFs and 8% of ETNs had $100 million in assets.

Disclosure: No positions at time of writing.

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