The ETFs with the biggest outflows in 2016 share a few unmistakable themes. Six of the 10 biggest flows losers this year are ETFs tied to international markets, particularly Europe and Japan. Combined, they’ve seen redemptions totaling more than $30 billion, according to FactSet data.
As is typically the case, poor performance is sending investors to exits of these funds. Europe and Japan have performed poorly this year, which comes as an unpleasant surprise to many investors who raced into those areas amid hopes that monetary stimulus and weakening currencies would lead to outperformance.
That didn’t happen.
HEDJ Loses Half It Assets
At the center of this phenomenon is the WisdomTree Europe Hedged Equity Fund (HEDJ). This is an ETF that picked up nearly $13.8 billion in assets last year on the back of the ECB-stimulus-strong-dollar thesis.
This year, it’s already lost more than half that amount, or $7.2 billion, to outflows.
HEDJ provides dividend-weighted exposure to European stocks with a tilt toward exporters. In addition, it hedges its currency exposure by shorting the euro.
European stocks have lagged this year, while the euro has actually strengthened against the greenback. HEDJ’s 0.9% year-to-date gain isn’t horrible by any means, but it’s a far cry from what investors expected of the fund entering the year.
Investors Throw In The Towel
In addition to HEDJ, two other Europe ETFs are currently on the top 10 outflows list for 2016. The iShares MSCI Eurozone ETF (EZU) and the Vanguard FTSE Europe ETF (VGK) have seen year-to-date outflows of $6 billion and $3.2 billion, respectively.
Like HEDJ, both of these ETFs saw large inflows last year, as investors bought into them in anticipation of strong performance in Europe this year. EZU had inflows of $7.3 billion in 2015, while VGK had inflows of $4.7 billion in the period.
The near-complete reversal of last year’s flows into EZU and VGK is more evidence of investors throwing in the towel on their bullish Europe thesis. Both ETFs are down close to 1% this year, falling well short of investors’ high expectations.
Eleven new ETF launched over the past week.
The VanEck Vectors AMT-Free 6-8 Year Municipal Index ETF (ITMS) and the VanEck Vectors AMT-Free 12-17 Year Municipal Index ETF (ITML) were launched. The two new ETFs parse the comprehensive exposure to the intermediate muni space the VanEck Vectors AMT-Free Intermediate Municipal Index ETF (ITM) currently offers. The funds are designed to give investors the ability to manage their exposure to duration and the muni yield curve more closely, according to the company.
The Amplify YieldShares Prime 5 Dividend ETF (PFV) is a fund of funds. This ETF owns the top five U.S. dividend ETFs selected based on three criteria: low expense ratio, low share price volatility and high dividend income, according to Amplify, a firm led by industry veteran Christian Magoon.
The Elkhorn Commodity Rotation Strategy ETF (DWAC) is a momentum-based fund that picks the top five commodities within the S&P GSCI Index based on relative strength metrics, according to Elkhorn. The methodology relies on Dorsey Wright’s proprietary relative strength model. In addition, the Elkhorn Fundamental Commodity Strategy ETF (RCOM) sets out to outperform the Dow Jones RAFI Commodity Index.
The AdvisorShares Focused Equity ETF (CWS) is an active fund that relies on the expertise of its portfolio manager to pick the top stocks with the best “fundamental attributes,” according to the firm. The fund is designed to have a focus on value—buying at low prices and holding it for the long term. The ETF has a unique fee structure. The expense ratio changes with the performance of the fund, meaning the portfolio manager will get paid based on his results.
Finally, First Trust rolled out last week seven new sector ETFs designed to be a “smarter approach” to sector investing. The funds rely on a three-factor methodology to picking securities in a process that ultimately tilts portfolios toward “lower valuations, stronger momentum, and less volatility” within each sector. The new smart-beta ETFs are:
- First Trust Nasdaq Bank ETF (FTXO)
- First Trust Nasdaq Food & Beverage ETF (FTXG)
- First Trust Nasdaq Oil & Gas ETF (FTXN)
- First Trust Nasdaq Pharmaceuticals ETF (FTXH)
- First Trust Nasdaq Retail ETF (FTXD)
- First Trust Nasdaq Semiconductor ETF (FTXL)
- First Trust Nasdaq Transportation ETF (FTXR)
Meanwhile eight funds announced their closures last week, with WisdomTree shuttering the following six ETFs after they failed to get any traction with investors. Those ETFs are:
- WisdomTree Global ex-U.S. Utilities Fund (DBU), $13 million in AUM, launched in 2006
- WisdomTree Global Natural Resources Fund (GNAT), $17 million in AUM, launched in 2006
- WisdomTree Commodity Currency Strategy Fund (CCX), $5 million in AUM, launched in 2010
- WisdomTree Commodity Country Equity Fund (CCXE), $7 million in AUM, launched in 2006
- WisdomTree Coal Fund (TONS), $1 million in AUM, launched in 2015
- WisdomTree Japan Interest Rate Strategy Fund (JGBB), $4.4 million in AUM, launched in 2013
The closure of two other funds also took place last week. The two-year-old Guggenheim Emerging Markets Real Estate ETF (EMRE), with $2.3 million in assets, and the CrowdInvest Wisdom ETF (WIZE) shut down after just four months on the market, which marks one of the shortest ETF life spans.
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Drew Voros can be reached at [email protected]
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