The global ETF industry has grown rapidly this year hitting a record of $2.76 trillion at the end of November with 1,659 products from 68 providers on three exchanges, as per the data from ETFGI. It is on track to cross the $3 trillion milestone in the first half of 2015.
The industry has gathered $275.3 billion in new capital since the start of the year through November, representing all-time high inflows and surpassing the prior full-year net inflows. About 72% ($1.98 trillion) of the total AUM came from the U.S. ETFs.
In fact, November has been the strongest month in 2014 with net inflows of $42 billion. Equity products have been leading the way higher with net inflows of $38.8 billion, followed by $4.9 billion inflows in fixed income products last month. Commodity ETFs/ETPs were the laggards with $221 million of asset outflows.
The U.S. ETF industry has hit the $2 trillion mark this week, accumulating $232 billion in new assets year-to-date buoyed by massive inflows into the equity products. It easily topped last-year record inflows of $188 billion. This is especially true as investors continue pouring their money into the equity ETFs on rising confidence in the U.S. economic growth, accelerating job market, renewed optimism in housing recovery, low interest rates, low energy prices, healthy corporate earnings, and a flurry of merger & acquisition activities (read: Give Special Thanks to These 3 ETFs).
Further, the U.S. has enjoyed back-to-back quarters of strong growth not seen in more than a decade. The economy expanded at a solid clip of 3.9% annually in the third quarter, up from the initial estimate of 3.5%, and was preceded by 4.6% growth in the second quarter. The country is also on track for the strongest annual job growth since late 1999. This suggests that the U.S. has emerged as a stronger nation trumping global economic concerns and geopolitical threats of 2014. Moreover, the Fed’s latest dovish comment that it is not in a hurry to raise interest rates has propelled the U.S. stocks higher.
As a result, a number of U.S. equity ETPs have seen over 500-fold increase this year. Below, we have highlighted some of those in detail:
iPath S&P MLP ETN (NYSEArca:IMLP)
MLP ETPs have gained immense popularity this year, primarily due to crumbling oil prices that have badly hurt the overall energy space. This is because MLPs have lower correlations to oil price and thrive in a low oil price environment, thereby having stable revenues. Beyond the stability, yields are also pretty high thanks to favorable tax rules that push firms in the MLP space to substantially pay out all of their income to investors on a regular basis. Further, these firms remain the major beneficiaries of the U.S. oil boom over the longer term.
While most of the products in this space have substantially increased their sizes, IMLP emerged as the biggest winner. Its AUM surged to $775.9 million from about $52 million at the start of 2014. The ETN follows the S&P MLP Index and charges 80 bps in fees per year from investors. It sees good volume of about 147,000 shares per day on average and has added 4.2% so far this year (read: 3 Promising MLP ETFs Now on Sale).
VelocityShares Volatility Hedged Large Cap ETF (NYSE:SPXH)
While 2014 is turning out as another banner year for the U.S. stock market, volatility has also been on the rise thanks to global economic slowdown concerns, geopolitical tensions, and lower oil prices. As a result, many investors have taken advantage of the rising volatility while protecting their long equity positions simultaneously by investing in volatility hedged equity ETFs.
Investors should note that the space is not much crowded and most of the products gained greater traction this year. Out of these, SPXH has pulled in over $73 million in capital, propelling its total asset base to $83.3 million. The ETF tracks the VelocityShares Volatility Hedged Large Cap Index and looks to hedge "volatility risk" in the S&P 500, offering investors’ exposure to not only the S&P 500 but also both long and inverse exposure in short-term VIX futures (read: Hedge Volatility in Your Portfolio with These Alternative ETFs).
The product provides target equity exposure of 85% to the S&P 500 while the remaining 15% goes to the volatility strategy. It trades in a light volume of roughly 20,000 shares a day and charges 71 bps in annual fees. The ETF has gained nearly 8% this year.
ProShares S&P 500 Aristocrats ETF (NYSE:NOBL)
In the current ultra-low rate environment and amid global uncertainty, investors have become defensive and are seeking safe and stable investments. Dividend Aristocrats generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis. In addition, aristocrats tend to skew the portfolio to less volatile sectors and mature companies (read: Guide to Dividend Aristocrat ETFs).
This fund has accumulated about 87% of the AUM as $428 million inflows this year shot up its total asset base to $490.3 million. Expense ratio is 0.35% while average daily volume is moderate at 78,000 shares. The product provides exposure to the companies that raised dividend payments annually for at least 25 years by tracking the S&P 500 Dividend Aristocrats.
Holding 54 stocks in its basket, the fund is widely diversified across securities as each accounts for less than 2.2% share. Consumer staples dominates about one-fourth of the portfolio while industrials, consumer discretionary, and health care round off the next threes pots with double-digit exposure. NOBL surged about 16% on the year and has 30-day SEC yield of 1.84%. It has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a Medium risk outlook.