“ETFs stood for extremely troublesome funds last month, after the flash crash in equities exposed their unexpected vulnerability to a steep drop in liquidity. Part of the appeal of exchange-traded funds is that they can be bought or sold instantaneously during the trading day, unlike mutual funds, which can change hands only at day’s end. But for 20 minutes starting at 2:40 p.m. eastern time on May 6, when the Dow Jones Industrial Average plunged nearly 1,000 points, some ETFs lost almost all their value and couldn’t be traded at all,” Tom Sullivan Reports From Barrons.
SO HOW BAD IS THE DAMAGE TO THE reputation of exchange-traded funds? “Watch the flows,” says Leon of S&P Equity Research, referring to the amount of money that goes into these securities. Well, the industry saw net inflows last month of $6.3 billion, though that was about half of April’s $12.7 billion, reports IndexUniverse.com, which tracks ETFs, indexes and index funds. But total assets fell to $798.4 billion on May 31, from $847.4 billion a month earlier. Investment Technology Group, an electronic broker and tech firm, says that, at the height of the flash crash, the returns of some ETFs decoupled from the underlying basket of stocks that they track. Some underperformed the underlying portfolios by more than 60%.
“What was unique in May was how investors sent a clear signal” of market anxiety by dumping growth ETFs and pouring money into those perceived as safe, including the many focused on emerging markets, says Dave Nadig, director of research at IndexUniverse.com. That came after the flash crash and as Europe fiddled while the Greeks rioted.
Sullivan goes on to say, “The top performer was the SPDR Gold Shares ETF (NYSE:GLD), which gained $4.2 billion in assets last month, bringing its total to $49.2 billion. May’s surprise, according to Nadig, was Pimco’s Enhanced Short Maturity Strategy Fund (NYSE:MINT), an actively managed money-market proxy that pulled in $596.4 million. That helped bring the firm’s total ETF assets to $1.55 billion, a nearly 50% increase over April’s total. Pimco, a fairly recent player in exchange-traded funds, became the 15th-biggest ETF firm, up from 19th in April.”
“Vanguard gained $2.49 billion in net assets, bringing its total to $103.1 billion — good enough for third place. It was helped by its MSCI Emerging Markets ETF (NYSE:VWO), which added $2 billion of assets, raising its total to $23.94 billion. It’s the fifth-biggest U.S. ETF. The biggest loser last month was PowerShares QQQ (NASDAQ:QQQQ), the Nasdaq 100 ETF, which suffered worst-in-show outflows of $2.4 billion, lowering its assets to $18.4 billion. BlackRock (NYSE:BLK), iShares’ parent, saw redemptions of $1.3 billion in May, but it still stood atop the exchange-traded fund world with $368.24 billion in assets,” Sullivan Reports.
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Here are some more details on the ETFs mentioned in the article below:
SPDR Gold Shares ETF (NYSE:GLD)
The investment SPDR Gold ETF (NYSE: GLD) seeks to replicate the performance, net of expenses, of the price of gold bullion. The trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets. The gold held by the trust will only be sold on an as-needed basis to pay trust expenses, in the event the trust terminates and liquidates its assets, or as otherwise required by law or regulation.
Pimco’s Enhanced Short Maturity Strategy Fund (NYSE:MINT)
PIMCO Enhanced Short Maturity Strategy Fund (MINT) is an actively managed exchange-traded fund (ETF) that seeks greater income and total return potential than money market funds, and may be appropriate for non-immediate cash allocations. MINT will primarily invest in short duration investment grade debt securities. The average portfolio duration of MINT will vary based on PIMCO’s economic forecasts and active investment process decisions, and will not normally exceed one year. MINT will disclose all portfolio holdings on a daily basis, and will not use options, futures, or swaps.
MSCI Emerging Markets ETF (NYSE:VWO)
The investment seeks to track the performance of the MSCI Emerging Markets index. The fund employs a passively managed investment approach by investing all or substantially all of assets in a representative sample of the common stocks included in the MSCI Emerging Markets index. This index includes approximately 748 common stocks of companies located in emerging markets around the world.
PowerShares QQQ (NASDAQ:QQQQ)
The investment is a unit investment trust designed to correspond generally to the performance, before fees and expenses, of the Nasdaq-100 index. The fund holds all the stocks in the Nasdaq-100 index, which consists of the largest non-financial securities listed on the Nasdaq Stock Market. The fund issues and redeems shares of Nasdaq-100 Index Tracking Stock in multiples of 50,000 in exchange for the stocks in the Nasdaq-100 and cash.