Bipolar Global ETF Fund Flows Continue in 2008

By Carl Delfeld of the Chartwell ETF Advisor and Chartwell Wealth Management

The bipolar nature of ETF investor fund flow trends in 2007 whereby money went to safety or for riskier above-average returns seems to be continuing in 2008. Other than emerging markets, money market funds were the clear winners in 2007, with inflows of $760bn during the year that lifted their assets to a record $3.1 trillion. Assets in emerging markets funds and exchange-traded funds doubled during the year, to more than $800bn. That compares with just $80bn 10 years ago according to Deborah Brewster of the FT.

Last week saw a record outflow from European equity funds, according to Emerging Portfolio Funds Research. Brad Durham, the managing director of EPFR, said: “Just the notion of US fund flows turning negative is a new phenomenon.”

The flows data, from EPFR, cover both retail and institutional investors. The latter are following the same pattern by lifting their allocations to passive indexed funds at the same time as going into higher-risk alternative investments. Brewster points out that huge inflows to emerging markets can have the effect of being a self-fulfilling prophecy, as the flow of money helps boost the prices of stocks in developing and frontier markets, lifting their already high returns.

But 2008 has been rough going as to emerging market and international country ETF returns. So far only Malaysia (EWM) is in positive territory with the Thai Fund (TF) dropping 21.3%. If you look back at 200 day returns, China (FXI) is still up 46.7% after substantial profit taking and While Ireland (IRL) has been hammered down 39.3%.

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