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September 1, 2017

Year to Date U.S. ETFs Outdraw Conventional Funds

by Tom Roseen.

Year to date through the fund-flows week ended August 30, 2017, U.S. ETFs have attracted some $247.2 billion of net new money, pushing total ETF assets under management over the $3.0 trillion mark. As might be expected—given the strong returns in the equity markets and despite perceived lofty valuations, geopolitical concerns, congressional gridlock, and a hawkish tone by the Federal Reserve Board—equity ETFs have attracted a net $168.6 billion for the year to date, compared to taxable bond ETFs’ $76.4 billion and municipal bond ETFs’ $2.2 billion.

Authorized participants (APs, ETF investors) continue to prefer nondomestic equity ETFs (+93.9 billion net, YTD) over their domestic equity counterparts (+$74.8 billion). Meanwhile, on the fixed income side APs have gravitated toward corporate investment-grade debt ETFs (+45.9 billion net) and Treasury ETFs (+$13.0 billion).

While recent geopolitical concerns (particularly surrounding North Korea’s missile launches), a weakening dollar, and a less accommodative stance by foreign central banks have influenced APs’ recent investment patterns, for Q3 thus far APs have injected some $15.4 billion net into domestic equity ETFs and $11.1 billion into nondomestic equity ETFs. APs have also padded the coffers of taxable fixed income ETFs to the tune of $16.0 billion net.

While iShares Core S&P 500 (IVV, housed in Thomson Reuters Lipper’s U.S. Diversified Equity ETFs macro-classification) has been the largest individual attractor of net new money year to date through August 30, taking in $20.0 billion, the next three largest attractors are warehoused in Lipper’s World Equity ETFs macro-classification: iShares Core MSCI EAFE ETF (IEFA, +$12.6 billion), iShares Core MSCI Emerging Markets ETF (IEMG, +$12.3 billion), and Vanguard FTSE Developed Markets ETF (VEA, +$11.2 billion). Drawing in the fifth largest amount of net new money and housed in Lipper’s taxable fixed income ETF macro-group is iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), taking in $9.4 billion.

In comparison, conventional mutual funds have not fared quite as well as their ETF brethren, attracting a little less than $54.3 billion net. Year to date fund investors have padded the coffers of taxable bond funds (+$119.8 billion) and municipal bond funds (+$13.6 billion); however, they are net redeemers of equity funds (-$55.3 billion) and money market funds (-$23.8 billion). Equity mutual fund flows are not a complete loss: As with their ETF counterparts, conventional fund investors have embraced nondomestic equity funds for the YTD period, injecting $30.9 billion net, but they have turned a cold shoulder to domestic equity funds, withdrawing a net $86.1 billion.

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