U.S. Large-Caps’ Net Cash Inflows Top Bonds

Net cash inflows in U.S.-listed ETFs surged to $55.8 billion in the third quarter, far exceeding the average quarterly inflows of $33.8 billion seen over the last three years, according to the ETF research team at Morgan Stanley Smith Barney. With $133.4 billion for the first three quarters of the year, ETF net cash inflows are “on pace for the biggest year on record,” says Morgan Stanley. This would beat the $174.6 billion that poured into U.S.-listed ETFs in 2008.

Investors made a big switch to risk as ETFs following U.S. large-cap indices received $11.0 billion, the largest net cash inflows for the quarter, compared with $8.1 billion for fixed income ETFs. This was a big change from the previous quarter when fixed income ETFs received about $19 billion. ETFs tracking high-yield corporate bonds topped the fixed-income segment with inflows of $4.4 billion, according to Morgan Stanley.

With 20 new ETFs launched in the third quarter, and another 11 in October, the number of ETFs stands at the extremely cool total of 1,234. Total assets in the U.S. ETF market, as of Oct. 25, were $1.3 trillion, a 21% increase since the beginning of the year.

The top three funds in terms of net cash inflows were the SPDR S&P 500 ETF (SPY), with net inflows of $7.4 billion, the SPDR Gold Trust (GLD), with $4.1 billion, and the Vanguard MSCI Emerging Markets ETF (VWO), with $3.9 billion, according to Morgan Stanley. Currency ETFs experienced the largest net cash outflows for the quarter, at $71 million. For the first nine months of the year, currency ETFs have seen outflows of $2.0 million. Most of the outflows came from ETFs bullish on the U.S. dollar, while most of the inflows went into funds bullish on the euro vs. the dollar.

Blackrock continues to be the market leader with 280 U.S.-listed ETFs and $528.4 billion in assets. This accounts for a 41.7% share of the market, says Morgan Stanley, down from 48% at the end of 2008. State Street Global Advisors, with $235.8 billion in 116 ETFs holds 18.6% of the market, down from 27% at the end of 2008. Vanguard had $231.6 billion in 65 ETFs, giving it a market share of 18.3%, up from 8% at the end of 2008. Through the first three quarters of the year, Vanguard has had net cash inflows of $41.2 billion, the most of any provider, says Morgan.

ETFs Experience 4th Straight Week of Inflows

ETF assets under management stand at $1.2 trillion, up 17% year to date, according to the Morgan Stanley Smith Barney US ETF Weekly Update. There were were no fund launches last week. Still, net inflows for the week totaled $2.9 billion, making that the fourth consecutive week of net inflows.

Currency Hedge ETFs Win Big at Global ETF Awards

Deutsche Bank’s family of Currency Hedge ETFs won the award for the Most Innovative ETF in the Americas for 2011 at the 8th Annual Global ETF Awards. The awards are given to industry participants for outstanding achievements in the marketplace. In Europe Deutsche Bank tied with the Nomura Voltage Mid-Term Source ETF for the top prize, while the Motilal Oswal Most Shares NASDAQ-100 ETF was named most innovative in the Asia-Pacific region.

The five ETFs under the Currency Hedge banner:
db-X MSCI Brazil Currency-Hedged Equity Fund (DBBR)
db-X MSCI Canada Currency-Hedged Equity Fund (DBCN)
db-X MSCI EAFE Currency-Hedged Equity Fund (DBEF)
db-X MSCI Emerging Markets Currency-Hedged Equity Fund (DBEM)
db-X MSCI Japan Currency-Hedged Equity Fund (DBJP)

The Most Innovative Exchange Traded Product (ETP) in the Americas went to the iPath S&P 500 Dynamic VIX ETN (XVZ), while the db Physical Gold SGD Hedged ETC won in Europe.

Held at the Grand Hyatt Hotel in New York last Thursday, the Global ETF Awards provide a window on how the global ETF industry views itself. Unlike the Capital Link awards, where a small committee of analysts and industry insiders choose the winners, the Global Awards is voted on by the entire ETF industry. Here 520 organizations from around the world voted on who they think are the industry’s leaders and innovators. The awards and ceremony were created and run by the operators of exchangetradedfunds.com.

The evening began with a new prize, the Nate Most Award. Named after the man who invented the SPDR, the first ETF, it’s awarded to the individual who has made the greatest contribution to the ETF Market.

“We honored to be able to celebrate Nate’s place as the father of the ETF and to honor achievements in the ETF industry,” said Arlene C. Reyes, chief operating officer of exchangetradedfunds.com.

The first winner of this new prize was James Rose, senior managing director of State Street Global Advisors, for his commitment to the industry and for setting a standard of excellence. In addition to running State Street’s ETF business he serves as the first chairman of the Investment Company Institute’s Exchange-Traded Funds Committee.

“Nate Most created a product that created an industry and a great product for investors,” said Ross upon receiving the award.

Here is the list of other winners:

Most Innovative ETF Index Provider
The Americas – Dow Jones Indexes
Europe – STOXX
Asia-Pacific – MSCI

Most Widely Utilized ETF Research (Statistical)
Deutsche Bank won in all three regions.

Most Widely Utilized ETF Research (Analytical)
The Americas – Bloomberg
Europe – Deutsche Bank
Asia-Pacific – Deutsche Bank

Best ETF Market Maker
The Americas – Knight
Europe – Flow Traders
Asia-Pacific – Flow Traders

Most Recognized ETF Brand
The Americas – SPDRs
Europe – (Tie) db x-trackers and iShares
Asia-Pacific – China 50 ETF

Best Service Provider
The Americas – BNY Mellon
Europe – (Tie) Northern Trust and State Street Fund Services (Ireland)
Asia-Pacific – SSgA

Most Informative Website
The Americas – SPDRS.com
Europe – etf.db.com
Asia-Pacific – hkex.com.hk

Most Informative Website – Media
The Americas – IndexUniverse.com

WisdomTree Wins Capital Link’s Top ETF Award

It’s award season again in ETF Land.

Capital Link held its 11th annual Closed-End Funds and Global ETFs Forum yesterday at its traditional home New York’s Metropolitan Club. During the conference Capital Link delivers awards to both the closed-end fund and ETF industries. However, I’m just listing the ETF awards. The awards are based on nominations by a committee of analysts and industry specialists who actively follow the products. Capital Link isn’t part of the nominating committee nor can members of the committee be candidates for the awards.

Capital Link’s award for Most Innovative ETF in 2011 went to the WisdomTree Managed Futures Strategy Fund (WDTI).

iShares won two awards: Best Shareholder Relations for best financial disclosure and proactive shareholder communications and Best Investor Relations ETF Website for most informative and user friendly financial Website.

The Most Innovative Index went to the Russell-Axioma IS Large Cap Low Volatility Index (LVOL).

Jan Van Eck, the president of Market Vectors ETFs, won the award for biggest contribution to the ETF sector in 2011. No explanation of the contribution was given, but audience members suggested it was for killing the Holdrs products.

In the category of awards to ETF analysts, Morgan Stanley Smith Barney won for best research team in both the ETF and closed-end fund industries. The team consists of Michael Jabara, David Perlman and Stephen Minar. Mariana Bush of Wells Fargo Advisors won the award for the analyst who made the biggest contribution to the ETF sector last year. She also tied for contribution to the closed-end fund sector with Jon Maier of Bank of America Securities – Merrill Lynch.

ETF Outflows Topped $2.5 Billion Last Week

ETFs posted net outflows of $2.5 billion last week, a period during which the S&P 500 fell 4.7%, says Morgan Stanley in its weekly ETF report. It was a huge amount considering the Thanksgiving holiday shortened the week to just 3 ½ trading day.

U.S. equities led the march out of the market with $3.1 billion in net outflows, with large-cap stock ETFs seeing the most redemptions, about $2.9 billion, according to the report. This has brought the total of U.S. ETF assets down 1% year to date to $991 billion, on a combination of lower asset values from market declines and net outflows.

Despite the flight from U.S. equities, the Vanguard Small-Cap ETF (VB) saw the most inflows of any ETF last week, $1.1 billion. In addition, Vanguard equity ETFs made up five of the top 10 ETFs to see net inflows last week. The other four were Vanguard Mid-Cap ETF (VO), Vanguard Small-Cap Growth (VBK), Vanguard Small-Cap Value (VBR) and the Vanguard Value ETF (VTV).

Meanwhile, the SPDR S&P 500 (SPY) saw the largest outflows for the 1-, 4- and 13-week periods. The SPDR lost $1.2 billion in assets last week. The iShares Russell 2000 Index Fund (IWM) saw the second-most outflows, $1.0 billion.

Over the past 13 weeks, fixed-income assets saw the greatest inflows, $15.8 billion vs. $32.5 billion for all asset classes. Fixed-income ETFS now make up 18% of all ETF assets, up from 14% at the beginning of the year, says the report.

ETFs Post Largest Weekly Net Inflow Last Week.

ETFs received $17.4 billion of net inflows last week, the largest weekly net inflow of the year, Morgan Stanley said in a report. U.S. equity ETFs received the most of any asset group, at $13.7 billion.

The top two asset classes over the past week were U.S. large-cap stocks, with net inflows of $5.3 billion and U.S. small and micro-cap stocks with $3.9 billion. Commodities saw inflows of $623 million. The SPDR S&P 500 (SPY), with $3.478 bilion and the iShares Russell 2000 Index Fund (IWM), with $3.471 billion, were the top two funds. The SPDR Gold Trust (GLD) saw net inflows of $852 million.

The short interest betting the SPDR will fall grew the most of all ETFs, $4.4 billion. Meanwhile iShares Russell 2000 Index Fund saw its short interest post the largest decline, $1.1 billion.

In a sign that investors were moving away from safe-haven assets, Morgan Stanley says the two funds with the largest net outflows were iShares Barclays Short Treasury Bond Fund (SHV), losing $683 million, and SPDR Barclays Capital 1-3 Month T-Bill ETF down $674 million.

Over the past 13 weeks, ETFs in all asset classes received a combined $29.4 billion in net inflows. Fixed income saw inflows of $13.8 billion over the past 11 weeks.
For the year to date, $98.3 billion have flowed into ETFs, or 9%, for a total ETF assets of $1.1 trillion.

Among ETFs under a year old the largest net inflows were seen by the PowerShare S&P 500 Low Volatility Portfolio, with $38 million last week, and the iShares High Dividend Equity Fund (HDV), with $19 million.

Notes from the Capital Link Conference

• Morgan Stanley’s Dominic Maister, winner of the 2009 award for contribution to the ETF sector award and head of the Best ETF Research Team, moderated the ETF Roundtable. Maister says ETF assets grew 47% in 2009. Of that total asset growth, 50%, or $120 million, comes from net cash inflows. The other half from increased valuations. Equity ETFs see $30 billion in net inflows, while equity mutual funds see $9 billion in net outflow.
• State Street Global Advisors’ director of ETF global capital markets, says the main driver of ETF growth the last few years was fixed income ETFs. From six fixed income ETFs in 2006 to 92 today. This has led to significant growth of full-service dealers using ETFs in portfolio models. Only 14% of institutional investors use ETFs, but they make up 50% of the assets. This would appear to mean there’s lot of growth potential left among institutions. Quigg said, “Institutions see ETFs as an investment tool, not a choice, and use ETFs to solve problems.” He said this usage will increase over the next 5 to 10 years.
• Gabriel Hammond, the chairman and founder of Alerian, the index provider for the J.P. Morgan Alerian MLP Index ETN (AMJ). MLP stands for master limited partnerships, a company with a different tax structure than a public corporation. These often focus on the energy and oil sector. He says the big advantage ETFs have over closed-end funds is their liquidity and transparency. Probably most important, investors could pay up to 200 basis points more than an ETF to own the top ten holdings in the MLP space in an closed-end fund.