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US ETFs Surge In July, Accounting for 90 Percent of Industry Growth

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Exchange traded funds (ETFs) surged in July turning this into a year of record growth, and the US accounted for nearly 90 percent of the growth, according to Stifel analyst Jeffrey Hopson. The increased interest in alternatives has been a boon for asset managers who already know their way around the ETF space, and this trend has been marked by even greater diversification at the sub-category level.

After a strong start to the year, it looked like ETFs could drop at the beginning of the summer when investors were beginning to wonder how the end of QE would affect them. “June was marked by a strong flow reversal on concern over rising rates and fed tapering, but much of the pullback appears to have been overdone,” says Hopson. “In July, ETF and Mutual Fund flows strongly rebounded on lower market volatility and improved investor sentiment. We expect both retail and institutional investors to increasingly use ETFs for tactical strategy throughout market cycles.”

Fixed Income ETFs flows Long term ETF flows alternative ETF flows

ETFs: Gains by type

At the subcategory level, investors are using ETFs to target specific risk exposures, with the result that equity products are seeing the most significant gains with $25.7 billion in inflows. Large Caps, Sector Stock, and Small Caps led within equity gaining $5 billion in net new assets each, while international equity funds mostly recovered from the June sell off.

Emerging market ETFs saw gains, but as with other emerging market investment options, growth has been modest and investors are starting to look elsewhere when they want to take on risk, and there is no sign that emerging markets will regain the momentum they had as recently as the end of 2012.


iShares had US inflows of $7.3 billion, which mostly made up for its $10.7 billion in June outflows, but worldwide inflows hit $3 billion covering June/July. iShares also gained ground on Vanguard in terms of asset gathering with non-US flows of $3.5 billion in July, mostly coming from Europe. iShares can expect to gain even more on Vanguard and SSgA with the acquisition of CS ETF, which gives it a better foothold in European markets where iShares’ competitors have a limited presence.

Taxable bonds ETFs recovered, but the overall trend is that investors are looking for short term, high yield strategies that doesn’t expose them to interest rate risk.

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