Assets invested in Exchange Traded Funds (ETFs)and Exchange Traded Products (ETPs) listed in the United States reached 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, according to figures from ETFGI’s monthly United States ETF and ETP industry insights.
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 US 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 SP 500 index was up 5.0% in January, which ranked as the 12th best January since 1950 and the 19thJanuary since 1950 when the index was up more than 4%. Again, since 1950, January gains of at least 4% in the SP 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 SP 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.
Overall there were $29.9 billion of net new assets allocated to ETFs and ETPs in January which is slightly higher than the $28.1 billion in December 2012 and 3.8% above the $28.8 billion of net inflows in January 2012.
Investors allocated $29 billion of net new assets to equity ETFs and ETPs in January. This is a continuation of the trend started in December when $28.6 billion of net new assets allocated to equity ETFs and ETPs in December 2012. 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-US) equity exposure with $3.0 billion. During January fixed income ETFs and ETPs gathered just $76 million and commodity ETFs and ETPs had net outflows of $615 million.
“The flows into the equities show investors risk appetite is increasing as investors are feeling more confident as global economic concerns over corporate earnings, US debt ceiling, US housing market, US job outlook and the outlook for the Eurozone seem to be improving. There are signs of a rotation out of fixed income into equities,” according to Deborah Fuhr, Managing Partner at ETFGI.
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.
“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. ETFs provide greater transparency in relation to costs, portfolio holdings, price, liquidity, product structure, risk and return compared to many other investment products and mutual funds.” according to Deborah Fuhr, Managing Partner at ETFGI.
At the end of January the United States ETF and ETP industry had 1,446 ETFs and ETPs, assets of US$1.42 trillion, from 54 providers on 3 exchanges. Vanguard gathered the largest net new ETF and ETP inflows in January with $11.0 billion, followed by iShares with $10.9 billion, then Powershares with $2.5 billion and WisdomTree with $2.0 billion, while SPDR ETFs experienced the largest net outflows with $1.7 billion.
iShares is the largest ETF/ETP provider in terms of assets with $586.8 billion, reflecting 41.2% market share; SPDR ETFs is second with $328.5 billion and 23.1% market share, followed by Vanguard with $263.8 billion and 18.5% market share. The top three ETF/ETP providers, out of 54, account for $1.18 trillion or 82.9% of ETF/ETP assets in the United States.
Indices and their methodology are a key factor in selecting and using ETFs and ETPs, and while there are over 100 firms providing indices, just over half (727) of the 1,446 products listed in the United States track an index licensed by one of the 3 largest index providers; SP Dow Jones, MSCI or Barclays Capital. Assets in these 727 products total $954.8 billion, or 67.1% of all ETF and ETP assets in the United States.
SP Dow Jones is the leading index provider for ETFs and ETPs with 437 products tracking their indices. These products account for $441.9 billion or 31.1% of all assets and gathered $5 billion in net new assets in January. MSCI ranks second with 170 products, $351.9 billion or 24.7% of all assets, with $15.0 billion of net new assets going into ETFs and ETPs tracking their benchmarks. Barclays Capital ranks third with 120 products, $161 billion or 11.3% of assets, reflecting the growth in the use of ETFs and ETPs for fixed income exposure.