ETF Inflows Set First-Quarter Record

The global ETF industry is off to its best start to a year ever, attracting record inflows of more than $67 billion during the first quarter, a 57% increase from one year ago.

U.S.-listed exchange traded funds attracted $55.6 billion of net new assets during the first quarter, nearly double the industry’s previous record of $29.1 billion set one year ago. The first quarter gain is a 37% jump from the previous quarter and a 91% jump from the year-ago first quarter, according to the BlackRock Institute ETF Landscape Report.

The S&P 500’s 12% gain over the first three months of the year prompted “risk-on” trades as investors stepped off the sidelines and back into the market.

“The bull market is boosting investor’s confidence,” said Jennifer Grancio, managing director and head of global business development for BlackRock’s iShares.  “Investors are now willing to add risk for potential upside gains.”

The favorable performance of the S&P 500 index lured investors into U.S. equity ETFs, which accounted for more than one-third of total net new assets.

Fixed-income was also a top performer, as investors added $16.3 billion to the sector’s U.S.- listed ETFs during the first quarter. Investment-grade and high-yield corporate bond funds pulled in $12.2 billion, accounting for three-fourths of all fixed income inflows. The low return environment drove demand for BlackRock’s iShares iBoxx High Yield Corporate Bond Fund (NYSE:HYG), the world’s largest junk-bond ETF, and SPDR Barclays Capital High Yield Bond ETF (NYSE:JNK).  HYG attracted $3.49 billion of net new assets while JNK added $2.83 billion.

The sector that saw a significant turnaround during the first three months of the year was emerging markets. Following a severe slump in 2011, investor inflows into U.S.-listed emerging market equity ETFs hit $11.5 billion, a 229% jump from the previous quarter. Emerging market inflows accounted for 21% of the industry’s total net new assets, a stark contrast to the sector’s $6.7B of outflows recorded one year ago.

Of the industry’s first-quarter top performers, two of the top five funds offer exposure to emerging markets. The Vanguard MSCI Emerging Markets ETF (NYSE:VWO) led the way, attracting $6.44 billion of net new assets. VWO competitor iShares MSCI Emerging Markets Index Fund (NYSE:EEM) wasn’t far behind, attracting $2.69B in assets.

“We’re seeing a lot of people moving back into emerging markets,” said Grancio.  “As people look to add emerging markets to their portfolios, ETFs have become the go-to vehicle because they’re diversified and you can see what you own.”

So, after a record-breaking first quarter, will momentum in exchange-traded funds build throughout the year?

“It was a very strong first quarter, and we’ll see that throughout the year,” said Grancio. “I think we’ll continue to see money move into emerging markets and high-yield fixed income ETFs.  These are trends that have happened for the last couple of months and we’ll continue to see them going forward.”

The total number of U.S.-listed exchange-traded funds rose to 1,438 as of March 31, up 5% from the 2011 fourth quarter and 23% from the year-ago first quarter.