China, Greece Don't Derail ETF Inflows In July


Stoked by Greece's flirtation with Eurozone departure, which prompted a five-week closure of equity markets there, and plummeting Chinese stocks, July was a turbulent month for global stocks but that did not stem the tide of inflows to exchange traded funds.

July global ETP flows of $36.3 billion were the best in five months, and the second best month of the year, with investors initially favoring safer fund categories before shifting attention to non-U.S. developed markets equity later in the month, according to BlackRock, the world's largest asset manager and parent company of iShares, the world's largest ETF sponsor.

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U.S. Equity

As China and Greece rattled some investors last month, U.S. equity and fixed income ETFs benefited. For example, the SPDR S&P 500 ETF (NYSE:IVV), Vanguard S&P 500 ETF (NYSE:VOO) and the iShares Core S&P 500 ETF (NYSE:IVV) were each among the month's top 10 asset-gathering ETFs. Only SPY added more than the $1.96 billion hauled in by the iShares 1-3 Year Treasury Bond ETF (NYSE:SHY), a sign that investors were comfortable turning to shorter duration Treasurys as a means of coping with turbulent international markets.

Fixed income flows rebounded to $9.6 billion following the first outflows of the year in June. As asset gathering for U.S. Treasuries subsided mid-month, corporate bond flows began to accelerate again. Investment grade corporate bond funds brought in $1.6bn and high yield corporate bonds added $1 billion, according to BlackRock.

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Currency Hedged

Currency hedged ETFs, already among this year's most popular ETFs in terms of new assets added, kept that trend going last month with the addition of another $3.5 billion of assets. The WisdomTree Europe Hedged Equity Fund (NYSE:HEDJ) and the Deutsche X-trackers MSCI EAFE Hedged Equity ETF (NYSE:DBEF), this year's top two asset-gathering ETFs, added about $2.2 billion in new assets combined last month.

BlackRock notes that inflows to international ETFs picked in the latter half of July as tensions surrounding China and Greece ebbed a bit. July marked the third consecutive month ETF inflows topped $30 billion. However, emerging markets ETFs are standing out due asset departures. Broad emerging markets ETFs lost $2.7 billion last month with the bulk of that total coming from the iShares MSCI Emerging Markets ETF (NYSE:EEM), while U.S.-listed China ETFs shed $700 million, according to BlackRock data.

However, there has not been a catalyst behind the selling and year-to-date flows are unchanged from March levels. The category has stayed in a tight range all year with the recent outflows offsetting asset gathering in the second quarter, said the asset manager.

The Fed

Although the Federal Reserve's interest rate policy remains one of the hottest topics in the investment community, investors returned to bond funds last month after pulling cash from fixed income ETFs in June. BlackRock says fixed income ETFs were on the receiving end of $9.6 billion in new assets last month. July's bond ETF inflows represented a five-month high.

Sticking with the rising rates theme, the most popular sector fund last month was the Financial Services Select Sector SPDR (NYSE:XLF), which hauled in $915 million in new assets, topping the $826.1 million added by the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) for top honors among sector funds.

IBB and other biotech ETFs slid during the last two weeks of July, but the ETF is up 3.3 percent over the past week. IBB, the largest biotech ETF, is one of seven biotech funds found among the 10 best sector ETFs this year.

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