Yield of Dreams

ETFs on Fire in 2012, Thanks to Stocks

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Stock_MarketETFs are on fire so far this year, with assets growing $139 billion in the first two months of 2012, according to the ETF Industry Association. Compare that to the mere $51 billion the industry took in for all of 2011. From year-end 2011, assets are up 13 percent to a total of $1.184 trillion, the ETF Industry Association said.

Tom Graves, analyst with S&P Capital IQ, attributes the boost to the strength of the global equity markets. In a Trends & Ideas piece in Marketscope Advisor, he writes:

In the first two months of 2012, the S&P Global BMI (Broad Market Index) was up 11%.... In 2012's first two months, ETF asset growth and cash inflows looked especially strong in the global/international equity category and among some high-yield fixed income ETFs. In part, we think this reflected investor willingness to take on more prospective risk while seeking favorable returns.

Although other ETF assets classes, such as fixed income and commodities, have grown rapidly, equities(excluding the real estate category) still accounted for 71% of ETF assets at the end of February. This included $557 billion in U.S. equity ETFs, and $278 billion in global/international equity ETFs, according to the ETF Industry Association. (Note: The ETFIA's equity categories exclude some real-estate-related ETFs which may own equities)…

Among the 20 largest ETFs are 12 that are viewed by S&P Capital IQ as having an equity emphasis, plus seven income ETFs and one ETF in the commodity category. As of March 6, 2012, S&P Capital IQ Equity Research's propriety ranking system had an Overall Ranking of Overweight on nine of these large equity ETFs, and a Marketweight appraisal on three of them.

Among equity ETFs, Vanguard MSCI Emerging Markets (VWO 43, Overweight) had the largest net cash flow ($5.7 billion) in 2012's first two months, followed by PowerShares QQQ (QQQ 63, Overweight), at $3.5 billion, according to the ETFIA.

It’s been baffling that investors are piling into Treasuries and government bonds when the yields are so little, while equities are rallying. This could be a sign that retail investors are waking up and putting their money work.

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