Nearly all the funds being closed have well less than $50M in AUM, the level State Street says is necessary for sustaining an ETF.
The list: $2.7M SPDR MSCI EM Beyond Bric ETF (NYSEARCA:EMBB), $14.7M SPDR BofA EM Corporate Bond ETF (NYSEARCA:EMCD), $26M SPDR Barclays International High Yield Bond ETF (NYSEARCA:IJNK), $2.1M SPDR MSCI EM 50 ETF (NYSEARCA:EMFT), $28M SPDR Russell/Nomura PRIME Japan ETF (NYSEARCA:JPP), $55M SPDR Russell/Nomura Small Cap Japan ETF (NYSEARCA:JSC), $50M SPDR S&P International Mid Cap ETF (NYSEARCA:MDD), $74M SPDR S&P Bric 40 ETF (NYSEARCA:BIK), $60M SPDR Nuveen Barclays Build America Bond ETF (NYSEARCA:BABS), $149M SPDR Nuveen Barclays California Muni Bond ETF (NYSEARCA:CXA), $34M SPDR Nuveen Barclays New York Muni Bond ETF (NYSEARCA:INY), $2M SPDR SSGA Risk Aware ETF (NYSEARCA:RORO).
The last day to trade the funds is Aug. 24. Proceeds from liquidations will be sent on or about Aug. 31.
There have been emerging market equity fund outflows for 16 of the past 19 weeks, and debt fund outflows in 23 of the past 26, according to the latest fund flow data from BAML. Year-to-date fund outflows of $86B is tops since 2008.
For perspective, European equity funds have seen inflows for 25 of the past 27 weeks.
While China's devaluation complicates things, "humiliated emerging markets are ripe for a bounce as Fed expectations peak," says the team.
A slump in emerging market confidence has led to $1T in capital outflows over the past 13 months, roughly double the amount that fled during the financial crisis.
The sustained exodus of capital highlights concerns that developing economies, suffering slowing growth and weakening currencies, are relinquishing their longstanding role as locomotives to become a drag on demand instead.
Due to a slowdown in emerging markets and softer output in the U.S., the World Bank downgraded its outlook for global economic growth this year, lowering its forecast by 0.2% to 2.8%. The bank expects growth of 3.3% in 2016.
With regards to the U.S., the World Bank decreased its 2015 prospects by 0.5% to 2.7%, saying a brutal winter sapped output in Q1 despite the economy now gathering steam.
Among those cut is the SPDR Barclays Capital Aggregate Bond (NYSEARCA:LAG), which now charges 0.1% per year, down from 0.21%, and making it more competitive with AGG and BND.
SSgA's (NYSE:STT) ten international ETFs - a group including IPD, IPW, and IPK - now have annual fees of 0.4% vs. 0.5% previously. The emerging markets ETFs' - including EDIV and GML - new expense ratios are 0.49%, down from 0.50-0.59% previously.
Some of the fee reductions are more dramatic: The SPDR 1500 Value Tilt ETF (NYSEARCA:VLU) and the SPDR S&P 1500 Momentum Tilt ETF (NYSEARCA:MMTM) are cut to 0.12% from 0.35%, and the SPDR Russell 2000 Low Volatility ETF (NYSEARCA:SMLV) is cut to 0.12% from 0.25%.
New Jersey's $76.8B pension fund cut its holdings of emerging market ETFs to less than $1.8B as of March 31, according to filings compiled by Bloomberg. As recently as 2009, EM holdings were about zero, but rose to over $3B by the end of 2012.
New Jersey's souring on a poor trade could be happening just as emerging markets are showing signs of rebounding following their worst relative performance last year in more than a decade. The MSCI emerging markets index (ETF: EEM) is up 10% since February 5, as is Vanguard's FTSE Emerging Markets ETF (VWO) - one of the funds cut back on by NJ.
New Jersey has company: In the last five quarters through March, investors have pulled $12B from Vanguard's $44B VWO and $12.8B from BlackRock's $36B EEM. The funds, however, have seen inflows of $4.6B since the end of March.
If this is a Fed-tightening-induced selloff, it's got to be the first one in which emerging markets are rallying. The broad iShares MSCI Emerging Markets ETF (EEM +0.5%) has now caught up to the S&P 500 YTD. Leading the charge is continued huge move in Brazil, where the Bovespa is up another 2% today, helping the iShares S&P Latin America 40 ETF (ILF +2.1%) sharply higher.
The iShares MSCI Brazil ETF (EWZ +3%) - ahead nearly 25% since the start of February - is now up 6.3% YTD. Behind the rally is the idea that the year-long string of rate hikes has maybe one more boost left in it.
Investors “are selling emerging markets which have very low valuations, significant dividend yields but have underperformed in recent times ... [for developed markets] which have relatively high valuations, potentially limited long-term earnings growth and where markets have just gone up rather fast," says Sam Vecht, a portfolio manager at BlackRock Emerging Europe Trust.
Mostly bearish on emerging markets in general and Turkey in particular over the past years, Vecht and team have turned bullish in the past few months, citing low valuations and high interest rates (high rates can go lower; zero rates can't).
Suffice it to say these sorts of things don't happen at tops. Brevan Howard Asset Management is reportedly shuttering its emerging market fund after it lost 15% last year, and fund manager Geraldine Sundstrom is exiting the firm.
Brevan Howard is Europe's largest hedge fund firm, with more than $40B in AUM. Its flagship Master Fund - opened in 2003 - has never had a losing year, but had a lame 2013, up just 2.6%. The emerging markets fund opened in 2007 and has $2B in AUM.
In order to draw the necessary capital to pull emerging markets out of their swoon, real interest rates have to go higher, says Citigroup. A near-doubling of the benchmark rate in Turkey last week only pulled one-year borrowing costs up to 3.6%, less than half the average in the thee years prior to 2008. The real yield in Mexico (EWW) is about zero. In South Africa, it's 1.4% vs. 2% over the past decade.
“When you have low real rates and try to finance your current-account deficits, it usually won’t work,” says Citi LatAm strategist Dirk Willer. “If the U.S. is repricing for higher rates, it’s very difficult for you to get away with lower rates. South Africa (EZA) and Turkey (TUR) are not safe yet.”
Good news for contrarian bulls on emerging markets - global emerging markets equity funds saw $6.33B of outflows this week, the fastest pace of exit on record, with institutional investors accounting for $5B of that figure.