Investors lock in profits in high-yield bond funds and increase flows to government-bond funds.
Exchange-traded funds attracted $15.6 billion in net inflows during the month of November, bringing the year-to-date total to $154.0 billion, on pace to match 2008’s record-setting year. Flows in 2012 have been dominated by taxable-bond ETFs, which saw an additional $3.9 billion in new capital added in November, bringing total net inflows for the year to date to $48.0 billion, surpassing any previous year. International-stock ETFs also saw strong inflows last month, attracting $5.2 billion in new money for the month of November.
Positioning for the "Fiscal Cliff"
Investors may be locking in profits after a strong runup in high-yield bonds and positioning their fixed-income portfolios for heightened uncertainty as we head towards the "fiscal cliff." After seeing strong inflows earlier in the year, high-yield bond ETFs saw outflows for the second-straight month. The largest fund in the category, iShares iBoxx $ High Yield Corporate Bond HYG, is up 11.9% for the year to date through month-end. HYG saw $812 million in outflows last month. Meanwhile, investors sought the perceived safety of Treasury bonds, as the long-term government-bond and intermediate-term government-bond categories added $600 million and $774 million, respectively. IShares Barclays 3-7 Year Treasury Bond IEI attracted nearly $1 billion for the month.
Elsewhere in the fixed-income space, emerging-markets bond ETFs gained net inflows of $774 million in November, bringing the year-to-date inflows into this category to $5.4 billion, an impressive total considering the fact that the category had just $7.0 billion in assets at the start of the year. In response to strong investor interest, providers have launched 12 new emerging-markets bond ETFs in the past two years, including the iShares Emerging Markets Local Currency Bond LEMB, which gained $155 million in new assets last month. Assets in the fund now total $365 million, up from just $40 million at the end of June. The fund has returned 11.8% through the end of November.
The largest actively managed ETF, PIMCO Total Return ETF BOND, brought in $450 million in net new assets in November and is on pace to surpass $4 billion in assets before year-end. The ETF has returned 6.0% over the past six months, outpacing the 4.6% return of its big brother, the open-end PIMCO Total Return PTTRX. BOND has been the most popular new launch of 2012, a year that has seen many fund closures, as discussed by my colleague, Robert Goldsborough, here. The median level of assets in the 95 ETFs that have closed so far this year was just $4.8 million. In comparison, the 169 new launches in 2012 have total assets of $8.4 billion (most of which is accounted for by BOND), or a median of $7.7 million. Of these 169 new launches, 24 had assets of at least $50 million.
Last month saw $483 million flow into municipal-bond funds, the highest amount for a single month on record. Compared with mutual fund assets, ETFs are underrepresented in the municipal-bond space. ETFs account for about 12% of total mutual fund and ETF assets in U.S. stock funds and about 8% in the case of taxable-bond funds, but they amount to just 2% of assets in municipal-bond funds. The largest municipal-bond ETF, iShares S&P National AMT-Free Muni Bond MUB, has $3.5 billion in assets and attracted $169 million in new capital last month. The fund has returned 8.0% for the year to date.
Stock Investors Continue to Favor Emerging Markets
The diversified emerging-markets category was the largest draw within the international equity arena, attracting $1.8 billion in net inflows in November. iShares MSCI Emerging Markets Index EEM saw a $2.3 billion inflow while Vanguard MSCI Emerging Markets ETF VWO had a $900 million outflow last month. Ostensibly, it would appear that this shift in assets was driven by VWO’s plan to change index providers to FTSE from MSCI.
Other international equity funds witnessing strong inflows during the month include iShares FTSE China 25 Index Fund FXI, which attracted $670 million of inflows. As discussed in this article, many of the passive, cap-weighted China stock indexes have a heavy exposure to financials. Meanwhile, WisdomTree India Earnings EPI and iShares S&P India Nifty 50 Index INDY, two India equity ETFs, each had about $40 million in new inflows. Favorable regulatory developments have provided Indian stocks with some positive momentum of late, as discussed in this article.