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ETF Investors Keep Buying Gold

Some ETF investors are piling into gold while others are betting on a strengthening greenback.

John Gabriel, 12/14/2009

November marked the ninth consecutive month of net inflows for exchange-traded funds. It was also the busiest month so far in 2009 for ETF providers in terms of new product launches. Last month we saw 24 new ETFs introduced to the market, bringing the year-to-date total to 116 new ETF launches. At the end of November there were 911 ETFs available on U.S. exchanges.

International Equity Funds Shine Again in November
On the back of another strong month for emerging-markets ETFs, the international equity category brought in the most assets among the broad asset classes in November. Vanguard Emerging Markets Stock ETF VWO led the way with $1.3 billion in net inflows. (iShares MSCI Emerging Markets Index EEM, which charges an expense ratio of 0.72% versus 0.27% for VWO, saw $309.1 million in net inflows). Next were iShares FTSE/Xinhua China 25 Index FXI and iShares MSCI EAFE Index EFA, with $647.6 million and $331.0 million in net inflows, respectively.

After Two Consecutive Months of Outflows, Domestic-Equity ETFs See Inflows
Investors were voting with their wallets in favor of lower expense ratios in the domestic-equity category as well. With approximately $1.0 billion in new assets, Vanguard Small Cap ETF VB topped the inflows list for U.S. stock ETFs in November. Investors poured another $471 million into Vanguard Small Cap Value ETF VBR and Vanguard Small Cap Growth ETF VBK. This was interesting, considering that iShares Russell 2000 Index IWM, iShares Russell 2000 Value Index IWN, and iShares Russell 2000 Growth Index IWO saw $868.6 million in combined net outflows over the same period. Each of the three aforementioned Vanguard ETFs levy expense ratios of just 0.15%, versus 0.24%, 0.33%, and 0.25% for IWM, IWN, and IWO, respectively.

As go the SPDRs SPY, so goes the U.S. stock ETF category. After two months of bleeding assets, the SPDRs saw $882.1 million of net inflows in November. Keep in mind when reviewing the category's year-to-date flow data, however, that the SPDRs' total year-to-date net outflows still stand at a whopping $32.2 billion.

Call it caution, or call it profit-taking. Whatever the case might be, we saw a combined $708.3 million exit Financial Select Sector SPDR XLF, SPDR KBW Regional Banks KRE, and SPDR KBW Banks KBE. Moreover, investors yanked a total of $737.6 million out of iShares Dow Jones US Real Estate IYR and SPDR Dow Jones REIT RWR.PAGEBREAK

Taxable Fixed-Income Funds Continue to Attract Assets
So far for the year to date, taxable-bond ETFs are the most popular of the major asset classes in terms of net inflows ($32.1 billion). The category had another strong showing in November, helped by broad fixed-income funds Vanguard Total Bond Market ETF BND and iShares Barclays Aggregate Bond AGG, which saw a combined $493.9 million of net inflows.

But it was the usual suspects--aka Treasury Inflation-Protected Securities and short duration funds--that led the way for the category once again. Consistent with what we've witnessed in previous months, iShares Barclays TIPS Bond TIP topped the list for this category, with $516.9 million in net inflows in November. SPDR DB International Government Inflation-Protected Bond WIP also added another $121.8 million in the month.

Investors also continued to shy away from interest-rate risk while looking for a place to park their cash. For instance, Vanguard Short-Term Bond ETF BSV, iShares Barclays 1-3 Year Credit Bond CSJ, PIMCO 1-3 Year US Treasury Index TUZ, iShares Barclays Short Treasury Bond SHV, iShares Barclays 1-3 Year Treasury Bond SHY, and SPDR Barclays Capital 1-3 Month T-Bill BIL combined saw $889.6 million in net inflows last month.

The Gold Rush Rolls On
Inflows into the commodity category over the past month were led by (you guessed it) SPDR Gold Shares GLD, which attracted more than $1.0 billion last month. In the year-to-date period, GLD alone has seen $11 billion in net inflows, or 44% of total category flows.

Investors also poured some $456.0 million into United States Natural Gas UNG and $207.6 million into  United States Oil USO.

ETF Investors Make Bullish Bet on the Greenback
Currency ETFs attracted $1.1 billion in net inflows in November ($2.3 billion for the year to date). At month-end there was $6.1 billion in total net assets invested across 29 currency ETFs.

Investors poured more than $670.4 million into PowerShares DB US Dollar Index Bullish UUP. So far this year, UUP has brought in $1.1 billion in net new assets compared with just $193.1 million for its sister fund, PowerShares DB US Dollar Index Bearish UDN.

Leveraged ETF Investors Continue to Prefer Daily Inverse Products
Investors poured a total of $579.7 million into leveraged, inverse, and leveraged inverse ETFs in November ($13.3 billion for the year to date). Still, leveraged "long" ETFs saw another $466.6 million in net redemptions (for the year to date, the group has seen $6.6 billion in net outflows). Investors were placing bearish bets last month, as evidenced by the $1.0 billion ($19.9 billion for the year to date) in net inflows for inverse ETFs. As of month-end, there was $11.5 billion invested across 62 "long" ETFs and about $20.0 billion invested across 89 "short" ETFs.

John Gabriel is an ETF analyst with Morningstar and contributor to Morningstar's ETFInvestor newsletter.

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