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Q4 ETF Asset Report: Broad Market ETFs Reign

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The fourth quarter of 2012 was a mixed bag for the equity markets. It was a quarter marked by certain domestic as well as global events which could prove to be game changers in the months ahead.

Nevertheless, the ETF industry seems to be going strong. A look at the top 10 asset accumulating ETFs this quarter reveals an impressive 5.97% increase in terms of total additions to the asset base over the third quarter of 2012, suggesting that even with some volatility in the market, demand for ETFs remains strong.

The following table reveals the 10 most popular ETFs in the final quarter of fiscal year 2012.

Table 1: Top 10 Asset Accumulating ETFs for Q4 12



Inflow for Q4

4th Quarter Returns

(EEM - Free Report)

Emerging Market Equities

$8.86 billion



Broad Market Equities

$6.16 billion



Broad Market Equities

$3.68 billion



Emerging Market Equities

$2.99 billion




$1.77 billion



Broad Market Equities

$1.42 billion



Developed Market Equities

$1.12 billion



Broad Market Equities

$1.14 billion



Emerging Market Bonds

$1.09 billion



Broad Market Equities

$1.07 billion



Surprisingly, the iShares MSCI Emerging Market ETF (EEM - Free Report) makes it to the list and its Vanguard counterpart VWO is nowhere to be found within the top 10 names. This could partially be due to Vanguard promising to switch its index from MSCI to FTSE, but Vanguard did suggest that the fees would be reduced in the move as well.

Although this would result in a cut in the already competitive expense ratio of 20 basis points for the Vanguard ETF (especially compared to the 67 basis points that iShares charges), the index excludes South Korea. Top names like Samsung and Hyundai will thereby be missing from the ETF portfolio so this could be part of the shift to EEM by larger investors (read 2012 Was Forgettable for These Emerging Market ETFs).

Also, it is worthwhile to point out that other Emerging Market ETFs have also made it to the top 10 asset accumulating list. The iShares FTSE China Large Cap ETF (FXI - Free Report) which provides a pure play in the Chinese large cap equity space has gained more than 10% this quarter accumulating almost $3 billion in its asset base.

The Chinese economy has for long been waiting for a turnaround. The latest bout of optimism from the Chinese economy comes in the form of rising industrial production coupled with increased infrastructure spending by the government and a real estate recovery. These factors have been the key positives for the Chinese economy (read Try Small Cap ETFs to Gain from Chinese Domestic Demand).

Of course, a modest recovery in the global economic space has surely helped the Chinese large cap companies which are more export oriented than their mid and small cap counterparts.

Also, the iShares J.P.Morgan Emerging Markets USD Bond ETF (EMB - Free Report) gained tremendous popularity this quarter. The paltry yields from the domestic U.S. fixed income market had forced yield hungry investors to look beyond the shores of the U.S.

Adding to the flavor of this product is that it eliminates currency risk by considering only U.S. Dollar denominated securities in its portfolio. Thus investors could get the actual returns without worrying about the exchange rate movements.

A number of domestic broad market funds have made it to the top 10 list too. The SPDR S&P 500 ETF (SPY - Free Report) , iShares Core S&P 500 ETF (IVV - Free Report) and the Vanguard S&P 500 ETF (VOO - Free Report) the three S&P 500 ETFs have accumulated $6.16 billion, $3.68 billion and $1.14 billion respectively. However, IVV leads in terms of returns by fetching investors 1.82%. This is followed by VOO returning 1.59% and SPY returning 1.47%.

Beyond the S&P 500 ones, other broad market ETFs tracking other indexes have featured in this elite list. The iShares 1000 Value ETF (IWD - Free Report) tracking the Russell 1000 Value Index and the Vanguard Total Stock Market ETF (VTI - Free Report) tracking the MSCI US Broad Market Index have made it to the top 10 list.

The former is a large cap ETF tracking 1000 large cap stocks from the U.S. equity markets whereas the latter is a total market ETF which is composed of more than 3300 shares and constitutes of stocks from the entire spectrum of market capitalization.

The fourth quarter was pretty much the most volatile quarter this fiscal. Although it seemed that the stock markets would end in the red this quarter especially post the presidential elections, it actually rebounded and posted positive returns.

Also, there was lack of clarity over the stock market performance of individual sectors since the third quarter earnings season was feeble and so was the forward guidance for the upcoming quarters by the company management.

This kind of explains the popularity for the broad based funds as investors seemed to play the wait and see game and ride out sector specific risk by allocating more to broad market funds.

Lastly, of late, gold has not been experiencing the best of times. In fact the outlook for Gold remains on the negative side at least in the near to mid-term (see Gold ETFs: Is the Sell-Off Overdone?). The SPDR Gold ETF (GLD - Free Report) is the only ETF in this list which has posted negative returns for the fourth quarter in spite of accumulating nearly $1.77 billion.

However, Gold still ended the year on a positive note gaining for the 12th straight year and on a multi-year high (read Gold ETFs Make 2012 Another Positive Year). And with the fundamentals not yet completely bearish for the yellow metal, a recovery in the longer term definitely seems possible.

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