Shaky market rattled ETFs in September

Total assets in exchange-traded funds and notes fell below $1 trillion for the first time since January.

By TheStreet Staff Oct 6, 2011 11:38AM

By Don Dion, TheStreetTheStreet

 

Shaky market action weighed on exchange-traded products over the past month.

 

According to the flow data compiled by the National Stock Exchange, total ETF/ETN assets dipped by $90 billion in September, closing out the month at $972 billion. This is the first time assets have broken below the $1 trillion mark since January. September's assets marked a decline of more than $160 billion since April's peak.

 

Despite the overall decline in assets, the total universe of exchange-traded funds and notes continues to expand. Over the past month, 34 new products were added, bringing the total number of ETFs and ETNs to 1,335.

 

Thanks to weak market conditions, nearly every ETF fund sponsor watched their total assets decline over the past month. Leading the retreat were industry leaders including Blackrock (BLK), State Street (SST) and Vanguard Group. This trio of firms watched their assets dip by a combined $74 billion.

 

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Companies including Van Eck, PowerShares and Rydex watched their assets dip between $1 billion and $4 billion each.

 

Pimco was one of the few companies to buck this trend in September. During the month, the bond giant watched its total ETF assets grow by $64 million.

 

A notable decline in assets is not necessarily indicative of heavy outflows. For example, of the three firms with the steepest asset losses over the past month, only State Street suffered net outflows. During September, the firm watched as $4.5 billion headed for the exits. Meanwhile, Blackrock and Vanguard welcomed over $3.5 billion each.

 

The main culprits leading to State Street's heavy outflows were the SPDR S&P 500 ETF (SPY), Energy Select Sector SPDR (XLE), SPDR S&P MidCap 400 ETF (MDY) and SPDR Barclays Capital 1-3 Month T-Bill ETF (BIL). These products, which represent four of the five top outflows leaders, watched $3.9 billion, $1 billion, $820 million, and $530 million flee for the exits.

 

On the opposite side of the spectrum, iShares MSCI EAFE Index Fund (EFA) was the biggest inflow recipient. In September, $3 billion entered the fund. Vanguard Emerging Markets ETF (VWO), meanwhile, saw net inflows totaling $1.7 billion.

 

Given the weak market conditions, it wasn't surprising to see ETFs linked to bonds, defensive sectors and safe-haven asset classes among the most popular funds during September. Vanguard Barclays Short-Term Bond ETF (BSV), PowerShares DB U.S. Dollar Index Bullish Fund (UUP), Utilities Select Sector SPDR (XLU), and Vanguard Barclays Total Bond ETF (BND) were among the top 10 inflow leaders.

 

Although it was once heralded as a haven destination, investors fled from the Swiss franc in September. Following the intervention on the part of the Swiss National Bank, the CurrencyShares Swiss Franc Trust (FXF) was shunned, resulting in nearly $250 million in net outflows.

 

Investors also showed interest in products designed to allow them to profit from the market's downturn. The ProShares Short S&P 500 ETF (SH) gathered a respectable $695 million.

 

Precious metal ETFs saw peculiar action over the past month. Despite gold's and silver's struggling performance, investors continued to pile into the largest bullion-backed ETFs. SPDR Gold Shares (GLD) welcomed $3 million while iShares Silver Trust (SLV) saw net inflows totaling $294 million. The same could not be said for the iShares Gold Trust (IAU) and the ETFS Physical Swiss Gold Shares (SGOL), however. These two funds saw net outflows totaling $165 million and $7 million, respectively.

 

Precious metal miner ETFs saw similar bipolar action. While Market Vectors Gold Miners ETF (GDX) scored a spot among the 10 largest inflow recipients and Market Vectors Junior Gold Miners (GDXJ) saw over $175 million enter the fund, investors fled the Global X Silver Miners ETF (SIL), resulting in net outflows.

 

Interestingly, although investor sentiment has been soured thanks to resounding macroeconomic concerns, investors appeared hesitant toward fear-tracking exchange-traded products. Over $180 million exited the iPath S&P 500 VIX Short-Term ETN (VXX).

September's NSX flow data provides interesting insight into the ways investors have opted to protect themselves in today's turbulent market environment. As we move ahead, many of the same factors that weighed on sentiment last month will continue to be in play. In will be interesting to see what adjustments are made.

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