ETF Specialist

ETF Investors Keep Buying Gold

John Gabriel

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.

ETF Flows ($Mil) 

11/31 AUM
# of ETFs
U.S. Stock
International Stock
Taxable Bond
Muni Bond
Leveraged ETFs



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).

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.

Debate what's behind the recent rise in gold and the U.S. dollar in Morningstar Discuss.

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Disclosure: Morningstar licenses its indexes to certain ETF and ETN providers, including Barclays Global Investors (BGI), Claymore Securities, First Trust, and ELEMENTS, for use in exchange-traded funds and notes. These ETFs and ETNs are not sponsored, issued, or sold by Morningstar. Morningstar does not make any representation regarding the advisability of investing in ETFs or ETNs that are based on Morningstar indexes.

John Gabriel does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.