S&P Bullish on Top Asset-Gathering ETFs
With the first quarter in the books, it is now known that exchange traded products hauled in a record $70.1 billion, topping the previous quarterly record of $65.5 billion set in 2012.
With U.S. equities racing to record highs, it was not surprising to see capital surge into U.S. stock funds.
"While money still moved into bond products, 93% of the inflows were into equities. In the U.S., equity products received $37 billion in the first quarter, up 80% from a year earlier," said S&P Capital IQ in a new research note.
Low volatility ETFs have been asset-gathering leaders, having hauled in $4.1 billion on a year-to-date basis as of the end of March. There are now 34 low or minimum volatility ETPs trading globally with a combined $11.2 billion in assets, according to iShares data. S&P Capital IQ favors the two largest U.S.-focused low volatility ETFs.
"While S&P Capital IQ's Equity Strategy Group believes equities should move higher in the next 12 months from the all-time highs reached in recent weeks, the journey will likely be a volatile one," the research firm said.
With that potentially bumpy ride ahead for U.S. stocks, S&P Capital IQ has an Overweight rating on the PowerShares S&P 500 Low Volatility Portfolio (NYSE: SPLV). SPLV is the dominant name among low volatility ETFs and now has almost $4.5 billion in assets under management following its May 2011 debut. As of April 8, SPLV had attracted $941.55 million in new assets, making it the second-best PowerShares fund by that metric, according to issuer data.
S&P also has an Overweight rating on SPLV's rival, the iShares MSCI USA Minimum Volatility Index Fund (NYSE: USMV). Now home to $2.68 billion in AUM, USMV has also been among the top asset-gathering ETFs in the U.S. this year. As S&P Capital IQ notes, SPLV and USMV are noticeably different at the sector level.
For example, utilities and staples combine for about 55.3 percent of SPLV's weight. The utilities sector only accounts for 8.5 percent of USMV's weight compared with over 31 percent in SPLV. Health care and staples combine for 33.5 percent of USMV's weight.
"From a sector perspective, during the first quarter, the leading performers were defensive, largely dividend-focused ones, namely Health Care, Consumer Staples and Utilities," said S&P. "Each was up more than 11.5% year to date through March. We believe the $6.1 billion of inflows to U.S. dividend-themed exchanged traded products this year has been a contributor to the sector strength; there is now $68.5 billion in these offerings."
Looking outside the U.S., Japan ETFs attracted $8 billion in inflows during the first quarter amid that country's efforts to boost inflation and weaken the yen. Those efforts have been a boon for the WisdomTree Japan Hedged Equity Fund (NYSE: DXJ), which has seen a stunning level of inflows since late 2012. DXJ now has $5.85 billion in AUM and is the top asset-gatherer among all ETFs this year. S&P also rates DXJ Overweight.
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