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What’s Driving The Global ETF Industry?

Amid continued volatility in the oil price and the instability in the stock markets, assets invested under global ETFs/ETPs touched an all-time high of $3.138 trillion in April. While equities failed to impress the ETF space, fixed income led the way. As per data from ETFGI’s April 2016 global ETF and ETP industry insights report , the Global ETF/ETP industry had a whopping 6,297 ETFs/ETPs from 283 providers on 65 exchanges at the end of April 2016. As per the report, inflows were witnessed across the globe with record levels of assets being gathered in the U.S. ($2.217 trillion), Canada ($77.42 billion), Europe ($533.34 billion), Japan ($145.93 billion) and other countries in the Asia-Pacific region ($125.21 billion) (read: Will European ETFs Continue to Underperform SPY? ). In April, global ETFs/ETPs witnessed net inflows of $10.13 billion, led by fixed income ETFs/ETPs which gathered the largest net inflows with $7.73 billion. This is not surprising considering the upcoming U.S. election, Brexit vote and the impact of quantitative easing across the globe which have ruffled investors. Below we have discussed a couple of areas which saw the highest inflow last month. Bond ETFs Record flows in bond ETFs could be attributed to the low-yield environment in most developed markets across the world. Disappointing macroeconomic data, global market turbulence and threats to the stability of the U.S. economy have been making headlines since the beginning of the year, leading to volatility across all asset classes. Because of these factors, bond ETFs have lately gained a lot of popularity as investors continue to look for attractive and stable yield in this ultralow rate interest environment (read: Time for Investment Grade Corporate Bond ETFs? ). In fact, these uncertainties led the central bank to lower the number of hikes and the projected federal funds rate this year. It now expects the federal funds rate to rise to 0.875% by the end of the year, instead of the previously expected 1.375%, implying only two rate hikes as compared to the four projected in December. The double blessing of easy monetary policy globally and a delayed rate hike in the U.S. made fixed-income securities a winner in the month, as investors scurried to safer assets. Funds which saw maximum inflows were the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEARCA: LQD ) – $1.2 billion, the Vanguard Total Bond Market ETF (NYSEARCA: BND ) – $ 834.3 billion and the iShares Core Total U.S. Bond Market ETF (NYSEARCA: AGG ) – $829.6 million. Minimum Volatility ETFs With mixed data flowing in from various quarters and widespread fear among investors about the direction of the market, it’s not surprising that investors are looking to follow a proper trading strategy which ensures stability. With that in mind investors sought low volatility ETFs with funds like the iShares MSCI USA Minimum Volatility ETF (NYSEARCA: USMV ) and the iShares MSCI EAFE Minimum Volatility ETF (NYSEARCA: EFAV ) witnessing inflows of $1.2 billion and $601.2 million, respectively. Link to the original post on Zacks.com

U.S. Fund Flows Report: Investors Shy Away From Equity Funds

By Patrick Keon Click to enlarge Thomson Reuters Lipper’s fund macro-groups (including both mutual funds and exchange-traded funds [ETFs]) experienced net outflows of approximately $266 million for the fund-flows week ended Wednesday, May 11. This almost-static outcome was the result of negative net flows from equity funds (-$6.1 billion) and taxable bond funds (-$514 million), offset by similar positive net flows into money market funds (+$5.1 billion) and municipal bond funds (+$1.2 billion). Equities bounced back from two straight weeks of losses on the strength of one trading day. After losing roughly 2.5% combined in the previous two weeks the S&P 500 Index posted a gain of 0.3% this past week, all of which was captured on Tuesday, May 10, as the index appreciated 1.25% for the day. This one-day spike represented the best daily return for the index in two months and was driven by a surge in oil prices as well as a rally in some beaten-down sectors. Oil prices rose on the news that U.S. crude inventories would not increase as much as they have in recent weeks. Meanwhile, sentiment on the street was that the interest in healthcare and biotech stocks was not sustainable, since it was most likely driven by value hunters and was not an actual bullish view of the sectors. The outflows from equity funds were basically split down the middle between mutual funds (-$3.1 billion) and ETFs (-$3.0 billion). Among mutual funds domestic equity funds saw $3.2 billion leave their coffers, while nondomestic equity had net inflows of $100 million. For ETFs nondomestic products accounted for the majority of the net outflows, with the iShares MSCI Eurozone ETF (BATS: EZU ) ( -$950 million ) and the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) ( -$933 million ) leading the way. Taxable bond ETFs (-$1.1 billion) were responsible for all of the net outflows for the group, while taxable bond mutual funds took in almost $700 million of net new money. The iShares iBoxx High Yield Corporate Bond ETF (NYSEARCA: HYG ) ( -$1.5 billion ) and the iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) ( -$697 million ) had the largest net outflows among the ETFs, while funds in Lipper’s Core Plus Bond Funds category had the largest net inflows (+$1.1 billion) among the mutual funds. Municipal bond mutual funds extended their string of net inflows to 32 weeks-taking in $1.1 billion of net new money this past week. Funds in the High Yield Muni Debt Funds (+$287 million) and General and Insured Muni Debt Funds (+$278 million) classifications were the largest contributors to the week’s inflow totals. This past week’s flows activity (+$5.1 billion net) marked the third consecutive week of positive flows for money market funds, during which time they took in $16.7 billion of net new money. Funds in Lipper’s Institutional Money Markets Funds classification were responsible for all of the net inflows for the group this past week (+$9.2 billion).

Inside Guggenheim’s U.S. Large Cap Optimized Volatility ETF

Low volatility exchange-traded products are in vogue this year due to global growth worries. Be it in China or in several developed economies, fears of a slowdown are widespread. The U.S. earnings picture is also in shambles with a moderation in GDP growth. Oil price, though recoiled from the pit of crisis, is nowhere near full-fledged recovery (read: Low Volatility ETFs Still in Play ). With no definite clues of sustained recovery in the market, edgy investors may want to invest in safe or low volatile products. The current low volatility ETF suite is performing well and probably this is why Guggenheim recently added a new one to the low volatility investing list. The name of the product is the U.S. Large Cap Optimized Volatility ETF (NYSEARCA: OVLC ) . Let’s dig a little deeper. OVLC in Focus The fund looks to track the Guggenheim U.S. Large Cap Optimized Volatility Index, which gives exposure to the advantages of low-volatility investing while “attempting to outperform these strategies during market rallies .” In short, the fund has been launched to act as a defense for most of the time but be more ‘aggressive when the market is rewarding risk characteristics’, per the issuer. This strategy results in the fund holding a basket of 93 stocks with Apple (NASDAQ: AAPL ), AT&T (NYSE: T ) and Procter & Gamble (NYSE: PG ) as the top three holdings with a total allocation of 7.28%. Sector-wise, the fund has double digit weight in Consumer Staples (19.97%), Health Care (18.02%), Financials (13.23%), Utilities (12.76%), Information Technology (12.20%) and Consumer Discretionary (11.69%). The fund charges 30 bps in fees. The underlying index is rebalanced on a quarterly basis. How Does It Fit in the Portfolio? The fund is a good choice for investors looking to play a volatile market. As per the issuer, it uses the S&P 500 index as its selection universe and then applies a proprietary formula to compute the risk-to-reward returns for the trailing 12-month period and figure out each stock’s volatility and correlation to the other stocks in the basket. The strategy is mainly ‘risk- controlled ‘ in nature but reacts to varying market conditions. Unlike low volatility products that normally underperform in bull markets, OVLC may play an aggressive role when risk-on sentiments are prevailing. Needless to say, if the proposed model works out, this ETF can be a great choice for risk-averse investors. ETF Competition Given that the fund seeks to lower portfolio volatility, it might face competition from other low volatility products in the space. The PowerShares S&P 500 Low Volatility Portfolio ETF (NYSEARCA: SPLV ) has an asset base of $7.17 billion. The fund charges 25 basis points as fees. The iShares MSCI USA Minimum Volatility ETF (NYSEARCA: USMV ) is another fund in the space with an AUM of $12.9 billion and a fee of 15 basis points. But the real competition is likely to come from the SPDR SSgA Risk Aware ETF (NYSEARCA: RORO ) that looks to offer capital gains and competitive returns with respect to the broad U.S. equity market (read: Beyond Miners, 5 ETFs Crushing the Market to Start Q2 ). Link to the original post on Zacks.com