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ETF flow trends diverge sharply at Schwab, WisdomTree

Todd Rosenbluth is director ofexchange-traded fund and mutual fund research at S&P Global Market Intelligence.The S&P Global Market Intelligence rankings for ETFs and mutual funds, availablethrough MarketScope Advisor, are quantitatively derived and based on performance,risks, costs and a qualitative analysis of the underlying holdings.

WhileWisdomTree Investments Inc.'sinternational-focused ETFs have experienced substantial outflows in 2016, 's emphasis onU.S. equity ETFs has brought in a flood of fresh money.

Aidedby $7.69 billion of net inflows year-to-date through July 15, Schwab has risen upthe ETF provider ranks, though it remains well behind industry leaders iShares —sponsored by BlackRock Inc.— and Vanguard Group Inc.Unlike WisdomTree's volatile flow trends, Schwab's wide array of low-cost market-capweighted ETFs have been consistently popular. Schwab reported $47.9 billion in proprietaryETF assets as of June 30, up 40% from the year-ago period. Just two weeks later,the asset base expanded to $50.9 billion, according to data from ETF.com. In contrast,assets at the brokerage's proprietary mutual funds climbed just 2% year over yearas of June 30 to $223.8 million.

SchwabU.S. Broad Market ETF (SCHB) and Schwab U.S. Large Cap ETF (SCHX) are the company'stwo largest ETFs, and each has a 0.03% expense ratio. SCHB gathered $681.5 millionof new assets year-to-date through July 15, while SCHX had $569.6 million of netinflows. Berkshire Hathaway Inc.and JPMorgan Chase & Co.are top-10 holdings of both funds.

SchwabInternational Equity ETF (SCHF) has been the most successful of the company's offeringsat attracting new money, pulling in $1.06 billion year-to-date through July 15.Demand was strong for a product that offers diversification across Europe and Japanat an expense ratio of just 0.08%. Financials represent the top sector; is one of the fund'slargest holdings.

Year-to-datenet client flows at Schwab U.S. Aggregate Bond ETF (SCHZ) have reached nearly $1billion. The $3.18 billion product, which holds investment-grade corporate bondsand U.S. government securities, has a 0.05% expense ratio, lower than comparablefunds from iShares and Vanguard.

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Investorsthus far in 2016 have run away from WisdomTree's two largest ETFs, WisdomTree EuropeHedged Equity ETF (HEDJ) and WisdomTree Japan Hedged Equity ETF (DXJ). After a $12.66billion increase in fresh funds in 2015, net flows at HEDJ were down more than $6billion this year through July 15. Unlike Schwab's market-cap weighted internationaloffering, HEDJ is constructed in a smart-beta manner. It holds dividend-paying companiesin the eurozone that derive 50% or more of their revenues from outside Europe thenadds on a currency hedge as protection. Financials are just the fourth-largest sector,but top-10 holdings include BancoSantander SA and BancoBilbao Vizcaya Argentaria SA.

Witha focus on exporters that pay dividends, in addition to hedging currency fluctuations,DXJ has some of the same portfolio characteristics as HEDJ. DXJ has seen $4.76 billionin outflows this year. A year-to-date total return of negative 16.8% may furtherdampen investor interest. Three financial companies are in the top-10 holdings:Mitsubishi UFJ Financial Group Inc.,Sumitomo Mitsui Financial Group Inc.and Mizuho Financial Group Inc.

Flowsoutside of these two hedged products have been steadier, with several of WisdomTree'sfunds seeing an uptick in 2016. A couple of the brightest stars have been U.S. equityETFs WisdomTree High Dividend ETF (DHS) and WisdomTree MidCap Dividend ETF (DON),with net inflows of $227.6 million and $226.6 million, respectively. Both fundscome with a 0.38% expense ratio and have double-digit year-to-date returns.

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Click here for an Excel file with data on the 10 largest ETFs sponsored by Charles Schwab Corp. and WisdomTree Investments Inc.

Click here for a template to view asset manager peer comparisons.