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US investors turn to European-focused ETFs

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North American investors have reacted to the challenging start to the year by pulling over USD20bn from domestic exchange-traded funds, but European focused funds have bucked this trend.

The data released by Markit shows that this outflow puts the current quarter on track for the worst performance in over five years.
 
The only other quarter to record an outflow over the last five years was the first quarter of 2010 when investors pulled USD5.7bn.
 
Funds exposed to the North American region have fared the worst, with USD14.9bn of outflows.
 
US large cap funds and emerging market funds led the outflow, with the likes of the SPDR having experienced over USD22bn of capital flight. The top ten list of funds seeing the largest outflows year to date includes seven other US equities focused funds which combine for a total of USD39bn of outflows.
 
However, the cyclical trend in the opening weeks of the year typically see investors pull assets from funds.  SPDR has seen net outflows in every January save one in the last five years.
 
The fact that bond funds, such as the iShares 1-3 Year Treasury bond ETF, top the list of funds seeing inflows indicates that North American investors are turning cautious about their local market. Bond funds make up the top four largest inflows into North American listed funds for a combined total of USD11.5 bn.
 
Another trend has been the fall from grace of emerging market funds. The two largest such funds making the top 10 outflows list are the MSCI Emerging Market ETF and Vanguard FTSE Emerging Market ETF. They have seen combined outflows of USD10bn year to date and account for the majority of withdraws as the total outflows from North American listed non-European funds comes in at USD10.8bn for the 817 funds which make up universe.
 
On the other side of the flow spectrum, European exposed funds have gained favour with North American investors, having seen USD5.1bn of inflows year to date. This drive does not look to be aimed at any specific country as North American investors have funnelled most inflows into regional focused funds such as the Vanguard FTSE ETF and the iShares MSCI EMU ETF which both have experienced USD1.2bn of inflows year to date.

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