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We often look to the ETF marketplace for clues into the sentiment of investors. A few of the key data points that we review are total assets and fund flows; creations and redemptions, each quarter. Below, as a point of reference, are the top largest ETFs, as measured by total assets, as of the end of the 1st quarter. The constituents of this list have not changed much in recent quarters.

Top 10 Largest ETFs (Assets) as of March 31, 2012

Ticker

Name

Morningstar Category

Assets ($M)

SPY

SPDR S&P 500

Large Blend

105,640.2

GLD

SPDR Gold Shares

Commodities Precious Metals

69,014.5

EEM

iShares MSCI Emerging Markets Index

Diversified Emerging Markets

39,597.4

EFA

iShares MSCI EAFE Index

Foreign Large Blend

38,104.6

QQQ

PowerShares QQQ

Large Growth

35,676.5

IVV

iShares S&P 500

Large Blend

29,978.9

TIP

iShares Barclays TIPS Bond

Inflation-Protected Bond

22,282.9

VTI

Vanguard Total Stock Market

Large Blend

21,470.3

LQD

iShares iBoxx $ Investment Grade Corporate Bond

Long-Term Bond

19,853.7

IWF

iShares Russell 1000 Growth

Large Growth

16,675.3

Source: State Street Global Advisors, ETF Industry Guide, as of March 31, 2012.

ETF flow information for the 1st quarter of 2012, however, tells a very intriguing story. The story for ETFs, in fact, appears to be slightly different than the 2012 YTD story for mutual fund flows. With respect to the latter, stock-based mutual fund outflows rose to $1.19 Billion in February (this marked the 10th month in a row of net outflows) as flows to bond-oriented mutual funds rose according to Investor’s Business Daily.

On the ETF front, while we did see some positive net flows into bond-oriented ETFs (notably High Yield Bonds), we also observed significant funds flowing into domestic and international – emerging market equity products. In terms of outflows, or redemptions in this case, funds were flowing out of a wide variety of Morningstar categories, albeit only slightly on the bond-oriented front.

Top 10 ETF Creations for Q1 2012

Ticker

Name

Morningstar Category

Net Flows ($mm)

VWO

Vanguard MSCI Emerging Markets

Diversified Emerging Markets

6,443.82

QQQ

PowerShares QQQ

Large Growth

4,224.53

HYG

iShares iBoxx $ High Yield Corporate Bond

High Yield Bond

3,485.85

JNK

SPDR Barclays Capital High Yield Bond

High Yield Bond

2,826.00

EEM

iShares MSCI Emerging Markets

Diversified Emerging Markets

2,694.26

LQD

iShares iBoxx $ Investment Grade Corporate Bond

Long-Term Bond

2,398.06

VXX

iPath S&P 500 VIX Short-Term Futures ETN

Volatility

1,998.35

GLD

SPDR Gold

Commodities Precious Metals

1,872.65

VIG

Vanguard Dividend Appreciation

Large Blend

1,296.71

VNQ

Vanguard REIT

Real Estate

1,238.03

Source: Index Universe, as of March 31, 2012

Top 10 ETF Redemptions for Q1 2012

Ticker

Name

Morningstar Category

Net Flows ($mm)

EFA

iShares MSCI EAFE

Foreign Large Blend

-2,428.28

EWZ

iShares MSCI Brazil

Latin America Stock

-1,354.61

XLU

Utilities Select SPDR

Utilities

-1,101.83

SPY

SPDR S&P 500

Large Blend

-942.06

IWM

iShares Russell 2000

Small Blend

-923.43

SHY

iShares Barclays 1-3 Year Treasury Bond

Short Government

-852.27

MDY

SPDR S&P MidCap 400

Mid-Cap Blend

-642.22

TNA

Direxion Daily Small Cap Bull 3x

Trading-Leveraged Equity

-614.50

BIL

SPDR Barclays Capital 1-3 Month T-Bill

Ultrashort Bond

-591.20

UUP

PowerShares DB US Dollar Index Bullish

Currency

-581.65

Source: Index Universe, as of March 31, 2012

Disclosure: Hennion & Walsh Asset Management currently has allocations within its managed account program to LQD, EEM, EWZ, XLU and EFA.

I believe that the divergence in fund flow information for the first quarter of 2012 may primarily be related to the types of investors who generally invest in the products. Institutional investors continue to gravitate towards ETFs for a wide variety of reasons while retail investors, fueled in large part for 401(k)/Defined Contribution Plan investments, use a great deal of mutual funds for their own household portfolios.

It is our current contention at Hennion & Walsh that Main Street (i.e. retail investors) is not buying in right now to the overly bullish sentiment of the markets, but Wall Street (i.e. institutional investors) is seemingly full steam ahead. Hence, recent ETF and mutual fund flow information would seem to support our contention as individual investors seem to be pulling back on stock fund investments and reallocating to bond fund investments while institutional investors appear to be searching for areas of additional growth in emerging market and domestic equity ETFs as well as alternative ETFs (Ex. Gold and Real Estate).

We will continue to monitor the fund flows associated with these two popular security types and report back on any important trend changes as necessary.

Source: What Are ETF And Mutual Fund Flows Telling Us?