ETFs Find Footing in October

NEW YORK (TheStreet) -- October was an impressive month for the global marketplace. With European fears waning and investors regaining an appetite for risk, major U.S. market indices managed to find footing and recover a respectable chunk of the losses in August and September.

Upward market action, combined with easing investor jitters boded well for the ETF universe. According to the flow data compiled by the National Stock Exchange, total ETF assets rose last month, recapturing the $1 trillion mark.

Industry leaders Blackrock ( BLK) and State Street ( SST) led in asset growth in October, gathering $10 billion and $8 billion respectively. Vanguard and PowerShares were notable inflow recipients as well, ending October with $2 billion in net inflows a piece.

Not every ETF sponsor was in the black. Deutsche Bank and ProShares led in terms of outflows, watching as $400 million and $270 million fled for the exits. PIMCO, U.S. Commodities Funds, and Merrill Lynch's HOLDRs each witnessed over $100 million in outflows as well.

The bulk of ProShares' outflows can be traced back to investor disinterest in the ProShares UltraShort 20+ Year Treasury Bond ETF ( TBT). The fund's $413 million in net outflows indicated that, despite improving market conditions, investors remain unwilling to shed their exposure to safe haven assets. The iShares Barclays 20+ Year Treasury Bond Fund ( TLT) welcomed $100 million in October.

Although TBT's outflows were substantial, they were dwarfed by those seen from the iShares Barclays Short Treasury Bond Fund ( SHV). With just under $850 million in net outflows, this fund easily topped the list of ETF losers.

Despite the fact that investors appeared reluctant to part with their defensive assets, risk fell back into favor. In an attempt to take advantage of the market's strength, funds designed to track emerging markets, U.S. equities, and high yield bonds proved to be popular destinations. iShares MSCI Emerging Markets Index Fund ( EEM) secured the top spot, pulling in over $3.7 billion.

Other major inflow recipients included the iShares Russell 2000 Index Fund ( IWM), with $2.9 billion; PowerShares QQQ ( QQQ), with $1.8 billion; and iShares iBoxx $ High Yield Corporate Bond Fund ( HYG), which saw drew nearly $1.1 billion.

Precious metals saw mixed action in October. Despite back-and-forth action much of the month, investors piled into ETFs linked to gold. SPDR Gold Shares ( GLD) welcomed over $600 million, while iShares Gold Trust ( IAU) and Market Vectors Junior Gold Miners ( GDXJ) had net inflows totaling $92 million and $43 million respectively. Big name gold miners were avoided, however. The Market Vectors Gold Miners ETF ( GDX) closed out October with $36 million in outflows.

Whereas investors showed some interest in gold, silver was shunned. With over $200 million heading for the exits, iShares Silver Trust ( SLV) scored a spot among the top 15 outflow recipients. Silver miners were unpopular as well. The Global X Silver Miners ETF ( SIL) suffered $15 million in net outflows.

Silver was not the only commodity that was avoided. On the contrary, as evidenced by the substantial outflows seen from products like the United States Oil Fund ( USO), PowerShares DB Agriculture Fund ( DBA), and the PowerShares DB Base Metals Fund ( DBB) futures-backed commodities ETFs of all types received the cold shoulder from investors.

Interestingly, however, at the same time investors were flowing out of these futures-backed funds, they were showing interest in equity-backed ETFs aimed at commodity producers. Investors ploughed between $100 million and $450 million into products such as the SPDR S&P Metals & Mining ETF ( XME), Market Vectors Agribusiness ETF ( MOO) and SPDR S&P Energy ETF ( XLE).

As indicated by October's flow data, investors have regained some confidence. However, looming macroeconomic issues facing regions like the EU continue to pose a threat. In the month ahead, it will be interesting to see how the various factors facing the developed world will impact investor preferences for ETFs.

Written by Don Dion in Williamstown, Mass.

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At the time of publication, Dion Money Management owned the PowerShares DB Agriculture Fund, iShares Gold Trust and PowerShares QQQ.

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