NEW YORK ( TheStreet) -- ETF investors flocked to emerging market funds in October. While the purchase of funds like Vanguard MSCI Emerging Markets ( VWO) and iShares MSCI Emerging Markets ( EEM) was by far the most dominant trend based on flows, fixed income remains a significant destination of investor dollars. Money was focused on inflation-protected securities and the short end of the yield curve, and a popular corporate bond ETF, iShares iBoxx Investment Grade Corporate Bond ( LQD) even saw significant outflows. Vanguard MSCI Emerging Markets ( VW0) saw $2.2 billion in net inflows last month, closely followed by the $1.76 billion that flowed into iShares MSCI Emerging Markets ( EEM). The sum of these two net inflows was equivalent to 45% of the net inflows across all ETFs and ETNs -- and they weren't the only emerging market funds with sizable inflows. Market Vectors Russia ( RSX) had $238 million in inflows and, more impressively, Market Vectors Brazil Small Cap ( BRF) had $195 million - which was equivalent to 67% of its September 30 AUM. All together, the net inflows for all global and international equity long ETFs in October was $7.47 billion, or 85% of net inflows and more than 50% of the gross inflows of $13.88 billion. The next four largest inflows were for U.S. bond funds, led by iShares Barclays TIPS ( TIP), with $589 million in net inflows; iShares Barclays 1-3 Year Credit ( CSJ), $392 million; Vanguard Barclays Total Bond ( BND), $356 million; and Vanguard Barclays Short Term Bond ( BSV), $327 million. iShares JPM USD Emerging Market Bond ( EMB), also a U.S. dollar-denominated bond fund, was eight in terms of inflows, with $302 million. The sum of all long bond inflows was $3.07 billion, showing investors' appetites for bonds remains strong, with the inflation protected and short-end of the yield curve most popular -- a sign of continued inflation fears. In conjunction with the huge inflows into emerging markets, it signals investors are not optimistic about the U.S. dollar and/or what that means for interest rates.
In the case of EMB, it holds U.S. dollar-denominated bonds. Investors searching for higher yield are on solid ground, but investors expecting protection from a falling dollar will be surprised should their expected scenario pan out. Commodity funds absorbed the next highest share of net inflows, led by the ever popular U.S. Natural Gas ( UNG) at $308 million, seventh best for the month. The net asset value of UNG declined $263 million, however, as natural gas prices resumed their downward march. Commodities are another asset class favored by investors fearful of inflation, and SPDR Gold Shares ( GLD) was the next most popular destination after UNG, with $272 million in inflows. iShares Comex Gold ( IAU) saw $171 million enter the fund, while ETFS Gold ( SGOL) had inflows of $92 million. REITs followed commodities, with $624 million in inflows, led by the $295 million that flowed into Vanguard Morgan Stanley REIT ( VNQ). U.S. long equities saw outflows of $4.8 billion, and adding on the $348 million to short ETFs, represented more than $5 billion either flowing out of or bet against U.S. equities. The ETF with the single largest inflow was SDPR Consumer Staples ( XLP), with $300 million, good for tenth overall. At the other end, the outflows were led by SPDRs ( SPY), with $2.3 billion exiting in October. More important was the $1.1 billion that flowed out of iShares Russell 2000 ( IWM), equivalent to 8.5% of September 30 AUM. iShares Russell 2000 Value ( IWN) had the tenth largest outflow, at $232 million. I covered the Russell 2000 several times on my Real Money blog in the past month because it was underperforming the other major indexes.
Other net outflows leaders were iShares iBoxx Investment Grade Corporate Bond ( LQD), $706 million; U.S. Oil ( USO), $509 million; PowerShares QQQ ( QQQQ), $432 million; SPDR Financial ( XLF), $354 million; SPDR Consumer Discretionary ( XLY), $268 million; iShares FTSE/Xinhua China 25 ( FXI), $258 million; and Vanguard Mega Cap 300 Growth ( MGK), $247 million. The outflow from the corporate bond fund lines up with the inflows into TIPS and short-term Treasuries as part of a larger trend of inflation fears. Leveraged short and short oil ETNs saw the largest inflows last month, and on net, equity ETFs in the oil service and exploration sectors also saw outflows, though broader energy ETFs saw inflows. Oil climbed in October and investors holding ProShares Ultra Short Oil ( DTO) would have seen their investment drop 17.9%, and the $81 million in net inflows only resulted in a gain in AUM of $56 million as shares lost value. We saw similar trends in August, when investors became bearish even as the market climbed higher. Whether their bets pay off this time remains to be seen, but the recent move in gold, if carried over to other commodities, suggests further pain could be in store. Stay tuned for further analysis of October fund flows. -- Written by Don Dion in Williamstown, Mass. A special note from Don: To put it simply, I want to help you profit from ETFs. You don't have to be an expert trader -- there are potential profits for investors at every level. And I think there's no better way to jump into the world of ETFs than my brand new service, TheStreet ETF Action by Don Dion.
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