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Investors pour money into emerging market ETFs during March


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Investors pour money into emerging market ETFs during March

Investorsadded $32.86 billion of fresh money to exchanged-traded funds in March,significantly higher than the $2.74 billion the industry gathered in , according to

One ofthe highlights of the month was the newfound popularity of emerging market ETFs.The biggest overallasset gatherer in March was iShares MSCI Emerging Markets (EEM), a $25.45billion ETF that swelled with the addition of $4.62 billion in net client flows.The March inflows more than erased the $1.70 billion of outflows the productexperienced in the first two months of 2016.

TheETF, which is managed by BlackRock Inc., trades approximately 69 million shareson a daily basis. EEM tends to be used primarily by institutional investors,who prefer it to other emerging market ETFs, according to S&P Global MarketIntelligence.

Comparatively,peer Vanguard FTSE Emerging Markets (VWO) pulled in just $496.2 million of newmoney last month, even though VWO's 0.15% expense ratio is well below EEM's0.69%. VWO is managed by VanguardGroup Inc.

Thefund cost is not the only difference between these two large ETFs. EEM tracksan MSCI Inc. indexthat considers South Korea to be an emerging market. The local China A sharesare not included in MSCI's broad emerging market indexes. In contrast, VWOtracks an index from FTSE/Russell, a firm that considers South Korea to be adeveloped market. That index incorporates exposure to China through A shares.

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AnotherETF with strong inflows in March was iShares J.P. Morgan USD Emerging MarketsBond (EMB). The fund pulled in $1.33 billion of new money, equal to 23% of itsoverall asset base as of the end of March. The ETF provides exposure to morethan 30 countries, including Mexico, Turkey and Russia.

SamStovall, S&P Global Market Intelligence equity strategist, noted that lowU.S. inflation and fewer expected rate hikes by the Federal Reserve helpedspark interest in emerging market securities during the month.

Otherpopular products in March were SPDR S&P 500 (SPY) and SPDR Barclays HighYield Bond (JNK), which gathered $2.92 billion and $1.76 billion, respectively,of fresh money. Both ETFs are offered by State Street Corp. unit

Overall,iShares had six ETFs on the top-10 list of asset gatherers in March. Anotherfour other iShares ETFs were among the top-10 ETFs by outflows.

Onesuch ETF was iShares MSCI Eurozone (EZU), which had $811.8 million in netclient withdrawals last month. Several peers suffered a similar fate.WisdomTree InvestmentsInc.'s Europe Hedged Equity (HEDJ) and Vanguard FTSE Europe (VGK)had outflows of $1.11 billion and $698.2 million, respectively.  

Inan effort to stimulate growth in the Eurozone, the European Central Bank announcedin mid-March that it would start buying corporate debt and to pay banks forlending to companies inside the Eurozone. But ECB chief Mario Draghi suggestedthat there would not be additional rate cuts, which S&P Global MarketIntelligence thinks caused concern among investors.

Jean-MichelSix, Standard & Poor's EMEA Chief Economist, views the ECB's actions as akey element of its credit easing policy. He believes that the central bank willsupport lending by easing term-funding costs, despite subdued private sectordemand.

Thelargest overall outflows were to iShares Short Treasury Bond (SHV) and iShares1-3 Year Treasury Bond (SHY). These products were more popular earlier in theyear when investors sought out the relative safety of short-term governmentbonds.

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S&PGlobal Market Intelligence operates independently from Standard & Poor'sCredit Rating Services.