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ETF Specialist

ETF Investors Buy in May

Emerging-markets ETFs lead another month of net inflows for the industry.

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ETF investors seemingly ignored the old stock market adage: "Sell in May and go away." In fact, the ETF industry posted its best month of the year, in terms of net inflows, attracting more than $14 billion in new assets during the month. For some context, this compares with May 2008 net ETF inflows of about $3.3 billion. Leveraged and inverse ETFs accounted for about 11% of the month's net inflows, versus 27% last month. The impressive inflows of the past month helped push the industry's year-to-date total net inflows to more than $20.5 billion. With the markets showing resiliency in holding on to gains from its recent rally, we're seeing investors start to regain their appetites for risk. A sign that optimism about the economy is growing can be seen in the bond markets; the yield on the 10-year Treasury note is now at its highest level since November, rising almost a complete percentage point since the end of April.

Emerging markets continued to shine in May. As seen in the table below, five emerging-markets ETFs-- iShares MSCI Emerging Markets (EEM),  iShares FTSE/Xinhua China 25 Index  (FXI),  iShares MSCI Brazil (EWZ),  Vanguard Emerging Markets Stock ETF  (VWO), and  iShares MSCI Taiwan (EWT)--made the top 10 and, combined, accounted for about $5 billion in total net inflows for the month (about 35% of total industry flows). These developing economies have certainly led the global stock market rally over the past several weeks (check out the year-to-date performances in the far right-hand column of the table). However, those considering allocating fresh capital to the group might wish to exercise some patience here. Emerging markets were slammed the hardest in 2008, but jumping in here after the group has rallied so much in such a short time span almost smacks of performance-chasing.

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