Fixed Income 2013

ETF Investors See Fiscal Cliff Solution

Chris Flood
Artpartner | Image Bank | Getty Images

Inflows into US-listed exchange traded funds rose strongly in November as the approaching fiscal cliff of spending cuts and tax increases failed to deter investors from committing new money to ETFs.

"With the outcomes of the US elections and super storm Sandy known and a growing sense that a solution to the looming fiscal cliff will be negotiated, investors put $20.6 billion into US-listed exchange traded funds and products in November," said Deborah Fuhr, managing partner at ETFGI, the consultancy.

Equity-linked ETFs captured just under half of the US inflows last month but there were some notable shifts in bond ETFs flows, according to ETFGI.

High yield fixed income ETF flows turned negative while investment grade corporate bond flows dropped sharply, reflecting growing concerns that a bubble could be developing after strong returns from both these sectors in 2012.

Dodd Kittsley, global head of ETP research at BlackRock, said that although there had been some withdrawals from high yield corporate bond ETFs in November, these were very modest compared with the strong inflows of $11 billion seen in the US during the first 10 months of the year.

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Mr Kittsley also pointed out that November's outflows from corporate bond high yield ETFs were counterbalanced by inflows into other high yielding assets, such as bank loans and emerging market debt, suggesting investors were switching into sectors where there was less perceived risk.

In the 2012 race among US exchange traded providers for investor's cash, Vanguard retained pole position after attracting higher inflows in November than its larger rival iShares, the world's biggest ETF manager.

Vanguard remains on-track to win the title of fastest growing US exchange traded provider for a third year in succession after gathering net inflows of $53.3bn between January and November, an increase of 48.6 per cent on the same period in 2011, according to ETFGI.

BlackRock's US iShares operations have seen inflows more than double to $48.1bn from $21.3 billion while State Street Global Advisors, the world's second largest ETF manager, has also seen its US inflows double to $24.1 billion from $11.2 billion.

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Invesco PowerShares has seen inflows surge to $6.6 billion from $2.7 billion while a range of smaller US providers including Pimco, Guggenheim, Alps and FlexShares have all seen inflows more than double so far this year.

In total, US listed ETFs (funds and products) have gathered net inflows $159.1 billion between January and November, an increase of 55.4 percent on the same period a year ago.

The US market remains the main engine of growth for the ETF industry globally with worldwide inflows into exchange traded funds and products reaching $223.2 billion, up 44.7 per cent.

Helped by its large presence in the European and Canadian ETF markets, BlackRock has retained its lead in the global race among providers for investors' cash worldwide inflows for its iShares business of $65.8 billion between January and November, an increase of 50.2 percent.

Vanguard's worldwide inflows have reached just over $54 billion, only slightly higher than its US flows as its international ETF operations remain relatively small.

Global assets held in exchange trade funds and products continue to set new records, reaching $1.89 trillion at the end of November, up 23.8 percent this year, according to ETFGI.