The Markets March 14, 2011

ETF Flows Continued Slower Pace in February

ETF flows eased their pace for the second consecutive month, but ended in the black with a roughly $6.8 billion monthly inflow, according to the Morningstar Direct Fund Flows Update.
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U.S. stock ETFs were the overwhelming driver of inflows in February. However, inflows to the asset class have fallen for the second month running, down roughly 55%. February inflows ended the month with just over $5.7 billion, compared with $10.5 billion in January and $17.2 billion in December.  

According to the Morningstar report, despite driving overall flows, several noteworthy U.S. stock offerings saw substantial outflows. SPDR S&P 500 and PowerShares QQQ changed course last month, after seeing sizeable inflows in January. SPY lost about $900 million last month, while the Cubes about $800 million. SPDR Dow Jones Industrial Average ETF saw outflows of $442 million.   

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The shift highlights last month’s shift out of large-cap value holdings. The exception to that rule, however, was Vanguard Total Stock Market, which saw roughly $711 million in inflows after leaking $520 million in January.   

Though flows were positive on the month, large- and small-cap value style categories accounted for U.S. stock’s largest outflows. In aggregate, large value shed $523 million while small value lost $208 million. 

The report said commodities funds had the second-best month of all asset classes. These funds saw $2.6 billion of inflows in aggregate, up from $1.7 billion in outflows in January.  

SPDR Gold Shares weighed heavily on commodities flows, with $691 million of outflows. Capital appreciation more than compensated for the outflows, though. Assets in the asset class actually grew by 5.5% to $102.4 billion. After being the runner-up to ProShares Ultra DJ-UBS Crude Oil in January, PowerShares DB Agriculture saw the largest individual inflow within commodities in February. At just over $636 million, inflows to DBA continue amidst strong talk of rising agricultural commodities prices and talk of food price inflation.  

Given events in the Middle East, it’s not surprising that four of the past month's top 10 fund outflows were members of the international stock asset class, Morningstar said. IShares MSCI Emerging Markets Index and Vanguard MSCI Emerging Markets accounted for $4.3 billion and $1.4 billion of outflows, respectively. IShares MSCI All Country Asia ex Japan Index and iShares FTSE China 25 Index Fund saw roughly $566 million and $517 million of outflows, respectively.

The Markets March 14, 2011

February Mutual Fund Flows Kept Pace with January

Flows into long-term mutual funds hit $27.9 billion in February, nearly matching January’s total of $29.8 billion, according to the Morningstar Direct Fund Flows Update.
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Taxable bond and U.S. stock remained the two most popular asset classes, taking in $11.9 billion and $10.1 billion, respectively. A Morningstar announcement said the combined inflows of $25.9 billion seen by U.S. stock funds in January and February is the most investors have added to the asset class during those same two months since they contributed $44.8 billion in 2004.   

In a break from 2010 trends among both U.S. stock and international-stock funds, large-cap categories saw greater inflows than their small-cap counterparts.    

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Municipal-bond funds were the only asset class to see outflows, but the pace of redemptions slowed to $4.4 billion following outflows of $12.5 billion in January.   

Credit-oriented taxable-bond categories remained popular. After collecting $5.6 billion in January, bank-loan funds added another $4.8 billion in February. The combined inflows of $10.4 billion during the first two months of 2011 is greater than the inflows recorded for the category during the same period in any prior year, according to the announcement.   

After outflows of more than $75.9 billion in January, money market funds reversed course with inflows of $16.7 billion during the month. 

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