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Europe bulls crowd ETF flows in Q1, US left behind

U.S. investors piled into European stocks and pulled money out of the U.S. in the first quarter of this year according to the latest flow figures for exchange-traded funds (ETFs), which show some $38 billion of fresh capital flowed into non-U.S. equity funds.

Much of that $38 billion went straight into European stocks according to data from Xtf.com, with the two most popular ETFs of the quarter in terms of money flows were both euro-hedged European stock funds -- WisdomTree Inter Hedge Equity Fund and Deutsche Bank X MSCI EAFE Currency-Hedged Equity Fund.

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An ETF is a security that can track either an index, a commodity, bonds, or a basket of assets. But the key difference between an ETF and a mutual fund is that they are traded like a common stock, changing price as they are bought and sold.

The WisdomTree and Deutsche Bank funds represent 25 percent of all incremental ETF flows for the first quarter of 2015, making up $14.7 billion of the total $56.4 billion that flowed into ETFs in the U.S.

At the same time, investors pulled money out of U.S. equities in the first three months of the year, with U.S listed ETFs that invest in U.S. stocks losing a total of $11.5 billion in redemptions.

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"That sounds bad, but it is really just one product, albeit the largest fund by assets under management, the SPDR S&P 500 ETF. With assets under management of $187 billion, anything that happens to SPY assets will be visible from the moon," said Nicholas Colas, chief market strategist at brokerage firm Convergex.

"For the quarter, SPY saw $22.8 billion of redemptions. Excluding that loss of assets, U.S. equity ETFs had inflows of $11.3 billion. Still, we have to include the change in SPY assets in any consideration of where investors are shifting their capital," he added.

Outside of equities, flows into fixed income picked up, with a third of total money flows going to bond ETFs, some $18.9 billion.

Commodity ETF also saw inflows of $5.2 billion in new money flows in the first quarter, with energy surprisingly leading the way.

"Unlike most quarters, where precious metals funds drive the largest swings, in Q1 2015 it was energy (especially crude oil) that moved the needle. The US Oil Fund (USO) saw $1.8 billion in inflows, or more than the SPDR Gold Trust, which took $1.3 billion," Colas said.

"The rest of the top five for commodity ETF Q1 2015 money flows were also oil related," he added.

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