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Q3 ETF Asset Report: Investors Back in the Market?

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Overall, 2012 has been a good one so far for the ETF industry, particularly the third quarter where some funds witnessed tremendous asset accumulation. In fact, the ETF industry currently has over $1.3 trillion in assets, a figure that is roughly 34% more than at the end of the third quarter in 2011 (as per ETF Industry Association).

Also, the top 10 ETFs (in terms of asset accumulation for Q3) witnessed a combined inflow of $27.65 billion which is an astounding 95% increase from the second quarter of this fiscal year, where the combined inflow for the top 10 funds was just $14.13 billion.

This is a clear indication of restored confidence of investors in the riskier asset segments, especially as dollars have come back into high yield securities, American stock funds, and emerging market stocks.

Moreover if the trend continues it could go a long way in dismissing the International Monetary Fund’s (IMF) lackluster prediction for global economic growth in its latest forecast which could pose serious headwinds for the markets as we enter the final quarter.

As you can see in the chart below, investors saw a number of ETFs pull in over a billion dollars in assets during the quarter. Furthermore, many of the funds are targeting similar segments, although we continue to see some of the ‘safer’ bond products in the top inflows once again for the third quarter:

Table 1 (Top 10 asset accumulating ETFs for Q3)




Inflow for Q3

Q3 Returns

(SPY - Free Report)

Broad Market

$9,077.99 million


(VWO - Free Report)

Emerging Market

$4,024.44 million


(IWM - Free Report)

Small Caps

$3,061.42 million


(GLD - Free Report)

Commodities- Gold

$2,408.75 million


(HYG - Free Report)

Junk Bonds

$2,141.01 million



Mid Caps

$1,616.14 million



Junk Bonds

$1,425.67 million




$1,422.98 million




$1,356.72 million



Large Caps

$1,117.81 million


Data as of 30th September, 2012 (From

As is evident from the table above, most of these ETFs are broad market ETFs (including small and mid cap funds), high yield bond ETFs and a commodity ETF — definitely riskier investment avenues, reversing the trend from Q2 when safety was the name of the game.

Behind some of the biggest gainers in assets

The ultra low interest rate policy has also led the income starved investors to place their bets on higher yielding ‘junk’ bond ETFs rather than lower yielding investment grade ones at the expense of credit quality. JNK and HYG, two such high yielding ‘junk’ bond ETFs, witnessed a combined inflow of almost $3.57 billion for the quarter.

Surprisingly, in the previous quarter JNK was one of the biggest losers of assets leaking around $1.2 billion. In fact, the biggest losers of assets in the third quarter are investment grade Treasury bond ETFs. SHY, IEI, IEF and BIL - which are all in the government bond space, have lost close to $4.52 billion cumulative in the period. This goes to show how fed up income seeking investors have become of the low yield policy followed by the Fed (read Long Term Treasury ETFs: Ultimate QE3 Play?).

As was expected, the oldest Gold ETF, the SPDR Gold Trust (GLD - Free Report) ) witnessed a substantial inflow in its asset base in the third quarter, amidst the build-up to the announcement of a QE3 which was a very tricky one for the markets.

There had been much speculation in the commodities and bond market over the likes of the monetary easing. Finally, on September 13th the Federal Reserve announced the launch of the much anticipated open ended bond buying program. As a result commodities (especially gold) rallied across the board.

However, the trend for GLD’s interest is expected to continue in the near term especially considering the fact that just one week into the fourth quarter, GLD has already amassed $1.05 billion in the first seven days. GLD has returned an impressive 11% for the third quarter (see Protect Against QE with these Precious Metal ETFs).

Meanwhile, everybody’s favorite, SPY, has been leading the asset accumulation race with an inflow of close to $9.08 billion. It was one of the largest asset accumulators for Q2 as well. With an already large asset base of $119.35 billion and an average daily volume of 144 million shares, SPY still remains the most popular option to play the large cap equity space.

Investors also have shown their appetite for broad market funds from the mid and small cap space as demand for risk comes back among investors. IWM, IJH and OEF all have low expense ratios ranging from 20-23 basis points indicating that expense ratio does play an important role in determining investment decisions.

Also, these products have a fairly large average daily volume with almost a million shares being traded daily for IJH and OEF and 47 million shares daily for IWM (see The Truth about Low Volume ETFs).

Continuing the trend from the second quarter, Vanguard MSCI Emerging Markets ETF (VWO - Free Report) was one of the largest accumulators this quarter as well. In fact the asset growth rate for this product has been phenomenal – at 303% from the previous quarter.

Thanks to its low expense ratio (0.20%) and bid ask spread, VWO has comfortably beaten its emerging market counterpart EEM (expense ratio of 0.67%) despite tracking the same indexes. EEM has added about $945 million for the third quarter (read Track Market Gurus with these ETFs).

XLF is pretty much the most cost-effective and popular option to play large cap equity space from the financial sector (read Inside the Top Zacks Ranked Financial ETF). In fact the sector has been pretty much leading the market rally after a disastrous performance last fiscal year. XLF has managed to accumulate $1.4 billion in its asset base for the quarter and has returned close to 7% in the time frame.

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