ETFs Rebound from Bad Start in 2010

After steep outflows of roughly $16.7 billion in January, exchange-traded funds attracted net inflows of more than $4.6 billion in February, according to the Morningstar Direct Fund Flows Update.

The U.S. ETF industry closed out February with about $764.6 billion in total net assets, up roughly 2.4% from $746.9 billion in December and up 67.9% from $455.5 billion a year ago. Solid market performance was responsible for about 73.8% of the month-over-month change in net assets, while investor inflows contributed the remaining 26.2%, Morningstar said.      

On a year-over-year basis, market performance accounted for about 58.8% of U.S. ETF industry asset growth, with flows representing the other 41.2%.     

Investors poured about $4.8 billion into ETFs covering domestic equities in February, the largest inflows among the broad asset classes. The category was led by SPDRs SPY, which saw roughly $1.5 billion in net inflows last month – a sharp reversal from the more than $15.1 billion in outflows it saw in January.     

ETFs tracking international equities, on the other hand, saw the largest net outflows among the broad asset classes last month, as investors yanked about $2.9 billion in assets from the category. This marks the first monthly outflow for the asset class since August 2009.    

Taxable bond ETFs took in about $1.9 billion in net new assets, with Treasury Inflation-Protected Securities and shorter-duration funds leading the charge. Interest-rate risk looks to still be top of mind for many investors, as the short-term government, short-term bond, and ultrashort-term bond categories took in $339 million, $365.3 million, and $155.9 million in net inflows last month, respectively. Intermediate-term bond ETFs and long-term government ETFs brought in another $422.6 million and $352 million in net inflows, respectively.     

On the flip side, with sovereign debt in the spotlight amid concerns related to Greece and other Eastern European countries, assets declined in ETFs that offer exposure to international bonds.     

Overall, commodity ETFs saw total net outflows of approximately $981 million in February. In total, leveraged and leveraged inverse ETFs saw $859.7 million in net new assets pour in last month. However, the inflows were solely due to investors loading up on short exposure, as leveraged funds offering long exposure continue to see net outflows, according to Morningstar.  
The report is here.