Strong demand from investors as well as advances of 8% and 10% for the S&P 500 and MSCI EAFE in September helped the U.S. ETF industry nearly reach $900 billion for the first time, finishing the month at $897 billion, Morningstar said.
In a reversal of fortunes, U.S. stock ETFs were the most popular in September, thanks to more than $10.2 billion in net inflows into SPDR S&P 500 SPY. While SPY saw a tidal wave of inflows last month, those flows were a sharp reversal from July and August in which SPY experienced net redemptions of $8.9 billion.
The predominant theme for U.S. stock ETFs in the current environment is investors’ appetite for dividends, Morningstar said. Several broad dividend themed funds–including SPDR S&P Dividend SPY, iShares Dow Jones Select Dividend DVY, and Vanguard Dividend Appreciation VIG–have seen a sharp uptick in demand in recent months. Those three funds took in more than $1.2 billion in net inflows last month. In the third quarter, the funds saw combined net inflows of nearly double that figure.
After 30 consecutive months of inflows, iShares Barclay’s TIPS Bond’s extraordinary streak came to an end in March of this year. Since March, investors have yanked more than $1 billion out of TIPS, of which $673 million was redeemed in August and September.
Morningstar said investors continue to add to their emerging-markets exposure. Of the $14.5 billion in inflows that poured into international stock ETFs in the third quarter, more than $12.5 billion (86%) flowed into ETFs covering broad emerging-market indexes. It’s the same story for the year-to-date period; $18.9 billion, or 86%, of the roughly $22 billion in inflows for international stock ETFs came from funds in Morningstar’s diversified emerging markets category. In the third quarter, the category accounted for 41% of all ETF inflows.