A must-know overview of ETF investments in the US

Part 6
A must-know overview of ETF investments in the US (Part 6 of 6)

Consider these must-know demand trends for ETFs like SPY

Trends in demand for exchange-traded funds

Exchange-traded funds (or ETFs) of companies based in the U.S. saw strong growth of 33% in 2013, with $1.6 trillion in total assets by year end. Equities continued to lead the market. Equity assets increased by close to $400 billion in 2013 over the previous year. Cash flows into the U.S. ETF market totaled a record $213.8 billion in 2013. Equity ETFs accounted for the lion’s share of the increase, recording $201.5 billion of inflows—72% higher than the previous year.

Let’s take a closer look at demand trends for ETFs to see what you can expect moving forward.

Number of Exchange-Traded Funds by TypeEnlarge Graph

Increasing demand – equity ETFs

Demand in the U.S. ETF market is largely dominated by equities. Within equities, domestic large-capitalization ETFs and developed market (Japan and Europe) benchmarked ETFs attracted the most flows.

In 2013, ETFs tracking U.S. large-cap indices like the SPDR S&P 500 ETF (SPY), the iShares Core S&P 500 ETF (IVV), and the Vanguard S&P 500 ETF (VOO) attracted cash flows of $35.7 billion. These ETFs track large-cap U.S. companies like Apple Inc. (AAPL) and ExxonMobil (XOM). Other equity segments that collected healthy inflows include the following.

  • Japan – $17.3 billion
  • European broad developed markets – $16.8 billion
  • Dividends – $15 billion
  • Global broad developed markets – $15 billion
  • Quantitative strategy – $12.3 billion
  • Small caps – $12.2 billion

Flat demand – fixed income ETFs

The demand for fixed income ETFs in the U.S. is mostly flat.

Fading demand – commodity, global, and sovereign ETFs

The commodity ETF market is largely driven by the prices of its underlying commodities. For 2013, commodity exchange-traded products lost $30.4 billion in cash outflows. This loss was mainly because of falling gold prices.

Emerging market ETFs experienced outflows of $10.2 billion in 2013 over the previous year. This was mainly due to renewed tensions in emerging and global markets like Ukraine, Iraq, and Brazil.

Sovereign ETFs lost $5.3 billion in outflows. This loss was due mainly to low returns as a result of all-time-low Treasury yields.

You can attribute the decline in flows from the commodity, global, and sovereign ETF spaces to events that negatively affected some sectors’ popularity. But broad-market, sector, and industry-specific equity ETFs continue to bring gains and attract investors worldwide.

Take a closer look at equity ETFs

To learn more about U.S. equity ETFs, check out Market Realist’s U.S. Equity ETF analysis here.

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