The final tally on 2009 is in, and there are a few surprises as we reach for those envelopes.
Navin R. Johnson: The new phone book’s here! The new phone book’s here!
Harry Hartounian: Boy, I wish I could get that excited about nothing.
With these immortal words, Steve Martin sums up my inexplicable excitement every time our friends over at the National Stock Exchange publish their monthly summary of assets, flows and volume in the exchange-traded product world.
The headline numbers get all the attention, as perhaps they should—U.S. ETP assets are up 46 percent year-over-year, to $790 billion. This comes on the back of $119 billion in net flows.
With the long view, there’s an interesting story about the shifting sands of ETF investors. For instance, here’s a simple chart showing how ETF assets ended the last few years:
The story’s simple really: The market remains dominated by equities, but non-U.S. equities have become more important. 2009 was clearly a year of growth for fixed income and commodities, while the more fringe asset classes remain precisely that—fringe.
The flow numbers make for a more interesting story still:
By removing the effect of market movements and focusing just on net cash flow into the products, we see what an interesting year 2009 really was. The biggest eye-popper is that negative number for U.S. equities, which had net outflows of $1.6 billion. But that number doesn’t tell the whole story. Here’s how the U.S. equity category breaks out for ’08 and ’09:
|U.S. Equity – Long||$101,467||($8,450)|
|U.S. Equity Long Leveraged||$15,701||($7,112)|
|U.S. Equity – Short||$118||$2,445|
|U.S. Equity – Short Leveraged||($3,025)||$11,502|
Not only did investors pull more than $15 billion out of what we would all consider a normal U.S. equity investment (long), they piled in nearly as much into the short side of U.S. equities. So notionally, that’s a $30 billion shift in investor sentiment, nearly as much voting-with-feet as showed up in new commodities, fixed income or global equity—the clear big winners in 2009.
Digging one layer deeper still, we can see that a lot of this shift happened right at the end of the year, which has me wondering: What was it about December? Here’s the top 10 list for asset flows last month.
|Assets (Millions)||Flows (Millions)|
|ETFs/ETNs by Product||Ticker||Dec-09||2009||Dec-09|
|SPDR S&P 500||SPY||$84,907||($19,433)||$11,559|
|PowerShares DB US Dollar Index Bullish||UUP||$3,235||$2,905||$1,766|
|iShares Russell 2000||IWM||$12,972||($277)||$1,613|
|Vanguard Emerging Markets||VWO||$19,389||$8,966||$1,239|
|iShares MSCI Emerging Mkts||EEM||$39,434||$4,957||$941|
|iShares Barclays TIPS||TIP||$18,490||$8,944||$756|
|SPDR Health Care||XLV||$2,932||$599||$520|
Eleven billion dollars in net SPY creations in 20-odd trading days? That’s an astounding figure to me, especially given the consistently negative U.S. equity sentiment throughout 2009. Eleven billion dollars is more than all but one ETF pulled in, in 2009. And that one ETF isn’t even on the list for December: the SPDR Gold Trust (NYSEArca: GLD). GLD pulled in nearly $14 billion over the course of 2009, but had net creations of just $128 million in December, as gold, for all intents and purposes, topped out for the time being. And while SPY got most of the love, the strong flows into IWM, XLU, DIA and QQQQ suggest that core longs are indeed back into U.S. equities in a big way.
And lest you think this is all about trading, these strong inflows in the big U.S. equity funds came at their lowest traded volume in months (measured by either shares or dollars). In fact, volumes are down year-over-year essentially everywhere except for a few niche plays, like leveraged financials.
In this case, I see the decline in volumes in the most heavily traded ETFS as great news. Strong inflows combined with lower trading volumes suggest the return of buy-and-hold investors to the marketplace; the very investors the market needs off the sidelines and taking risk.