ETF Market Witnesses Largest Monthly Outflow Since 2010 In August

The exchange-traded funds (ETF) growth story hit a bump for the month of August as the industry saw investors pull out a little more than $16 billion worth of assets from all U.S. ETFs over the period. ^[1] The outflows for August were the largest since January 2010 when U.S. ETFs grew leaner by $17.1 billion. This is not very good news for the global asset management giants like BlackRock (NYSE:BLK), State Street (NYSE:STT) and Vanguard who have seen strong revenues over recent quarters from the steady growth in their ETF assets.

The reason for ETFs falling out of favor with investors can be readily traced to the Fed’s decision to begin tapering its asset purchase program by the end of the year which jinxed the country’s interest-rate market, and in-turn the demand for fixed-income ETFs. Looming threats of U.S. military intervention in the Middle East also sent the equity market into a tizzy towards the end of August – compounding the issue. In fact, the single largest reason for the net outflows in the industry is the $13 billion in redemptions for State Street’s SPDR S&P 500 equity ETF – the biggest ETF in the market with just under $140 billion in assets under management.

See our full analysis for State Street | BlackRock

The best indication of the popularity of exchange traded funds (ETFs) and other exchange traded products (ETPs) among investors across the globe is the fact that the industry has grown to roughly $2 trillion in size from being a largely obscure investment option at the turn of the century. ^[2] This figure includes fixed income, equity as well as currency and other alternative ETF offerings by asset managers around the world. And a huge chunk of this asset base comes from three companies – BlackRock, State Street and Vanguard with a share of roughly 40%, 17% and 13% respectively of the market.

But the ETF environment has seen considerable changes in the wake of the Fed’s announcement to gradually reduce its monetary assistance to the U.S. economy. Fixed-income ETFs began losing value towards the end of June as a direct result of the rising interest rates triggered by the Fed’s decision. Investors promptly began shedding their investments in fixed-income ETFs – withdrawing $7.3 billion worth of assets from these funds in July and another $6.8 billion in August.

Thankfully, equity ETFs held things together for the industry in July with inflows of about $22 billion in assets. But while equity ETFs still witnessed net inflows for the month of August, the figure fell sharply to $10.8 billion.

As the undisputed leader in the industry thanks to the runaway success of its iShares line of ETF offerings BlackRock manages about $800 billion in ETF assets split roughly 70:30 between equity iShares and fixed-income iShares. And its considerable focus on the ETF industry represents a marked downside to its total value – something that can be understood to an extent by making changes to the chart below.

Submit a Post at Trefis Powered by Data and Interactive Charts | Understand What Drives a Stock at Trefis

1. August ETF Outflows Poised to be Biggest Since 2010, The Wall Street Journal, Aug 30 2013 [↩]
2. ETFGI Press Release, Apr 8 2013 [↩]