ETP assets in the U.S. fell to $1.64 trillion as of January 31, 2014, due to outflows and market declines. Equity ETFs saw total assets decline by $60.9 billion while bond ETFs saw assets increase by $2.9 billion.
January was marked by a sharp rise in the VIX, indicating that investors expect increased equity market volatility in the next 30 days. Historically, poor market timing by retail investors during periods of uncertainty has resulted in lower long‐term returns. Some investors may want to evaluate low volatility ETFs as a way to stay invested in equities while reducing the magnitude of a potential drawdown relative to traditional market cap weighted equity ETFs.
The year 2013 was a historically bad year for the yen, so hedging against a falling yen was a very effective strategy. That trend has reversed in 2014 YTD, with an appreciating yen. However, investors in emerging market equities may want to consider currency-hedged ETFs if those currencies continue to depreciate versus the USD in 2014.
A total of 25 new ETFs were launched in January 2014 in the U.S. ETF sponsors are focusing on higher value ETFs in the 50–85 bps expense ratio range that offer active management or targeted strategies such as currency hedging or factor exposure.
An analysis of sub-scale ETFs in the U.S. shows that a vast majority of them are in the inverse/leveraged, currency, commodity, and quantitative strategy categories.
© 2013 Market Realist, Inc.