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Lipper U.S. Fund Flows: Large Seasonal Outflows

By Tom Roseen During the fund-flows week ended December 16, 2015, investors became somewhat bipolar ahead of the U.S. Federal Reserve’s two-day policy meeting, while oil prices continued to slide to lows not seen since 2009. OPEC’s report showed the cartel’s oil output had risen to its highest level since 2012, perpetuating the global glut in supplies. Also, new applications for U.S. unemployment benefits jumped to their highest levels in five months. At the beginning of the flows week, investors learned of a meltdown in Third Avenue Focused Credit Fund , a high-yield mutual fund; it began blocking investors from making redemptions, weighing heavily on other high-yield offerings as investors began to wonder if the related selloff might extend into other funds in the group. A two-day turnaround in oil prices and anticipation that the Fed would pull the trigger to raise its short-term lending rate in December pushed stocks higher in the middle of the flows week, with many investors believing conditions for a Santa Claus rally were beginning to take shape for the latter half of December. On Wednesday, December 16, investors appeared to shrug off reported weakness in November’s industrial production numbers and another slump in oil prices and cheered the decision by the Fed to raise its key interest rate for the first time in almost ten years. Also, the commitment to a gradual pace of increases over the future was seen as an attempt to ease investors’ worries about the change in ultra-low interest rates, which have been attributed by many to be a catalyst for the recent multi-year equity rally. Despite some late-week optimism, investors were net redeemers of fund assets (including those of conventional funds and exchange-traded funds [ETFs]), withdrawing a net $39.6 billion for the fund-flows week ended December 16. Investors turned their back on equity funds, fixed income funds, and money market funds, redeeming $13.2 billion, $15.4 billion, and $11.3 billion net, respectively, for the week, but they padded the coffers of municipal bond funds (+$0.3 billion) ahead of tax season. (Keep in mind, however, that year-end distributions can play a factor in the weekly flows calculations, if they fall on a Wednesday, along with the impact of tax selling at year-end. So, some of the big swings we witnessed this past week may be offset next week.) For the tenth week in a row equity ETFs witnessed net inflows, taking in $4.1 billion for the week. Despite initial concerns over the FOMC announcement, authorized participants (APs) were net purchasers of domestic equity ETFs (+$2.8 billion), injecting money into the group for a fifth consecutive week. They also padded – for the fourth week running – the coffers of nondomestic equity ETFs (to the tune of +$1.3 billion). As a result of the wild swings in oil prices and conviction about the Fed interest rate hike during the week, APs turned their attention to some out-of-favor issues, with Energy Select Sector SPDR ETF (NYSEARCA: XLE ) (+$1.3 billion), iShares MSCI EAFE ETF (NYSEARCA: EFA ) (+$1.1 billion), and iShares Core S&P 500 ETF (NYSEARCA: IVV ) (+$0.6 billion) attracting the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, SPDR S&P 500 ETF (NYSEARCA: SPY ) (-$0.8 billion) experienced the largest net redemptions, while WisdomTree Japan Hedged Equity ETF (NYSEARCA: DXJ ) (-$0.5 billion) suffered the second largest redemptions for the week.

JPN: A New Way To Invest In Japan

Summary Barron’s says it’s time to get long Japan. Deutsche Bank listed a new Japan ETF at the end of June. This new ETF may be an excellent way to buy Japan. On July 18th, Barron’s published an article titled, ” Time to Buy Japan’s Blue Chips .” Given that, and given that some investors may be seeking to gain exposure to Japan, I thought I would discuss and analyze one of the newest ways to get long Japan. The Deustche X-trackers Japan JPX-Nikkei 400 Equity ETF (NYSE: JPN ), freshly listed on June 24th, is Deutsche Bank’s newest Japan ETF, and the first U.S. listed ETF that tracks the JPX-Nikkei 400 Index. In this brief analysis, I will take a look at the underlying index that JPN tracks, how the fund is structured and how it compares to another Japan ETF. The Underlying Index To begin my analysis of JPN, I will first describe how the underlying JPX-Nikkei 400 Index works. This index is based on the 400 highest scoring (more on the “score” in a moment) listings from the JASDAQ and TSE. The scores are based on a four-part selection process, which begins with this screening: Listed for at least 3 years Must be common stock More assets than liabilities in the last 3 fiscal years No operating or overall deficit in the last 3 fiscal years Not designated to be de-listed After this initial screening, the top 1000 listings are selected based on market cap and trading value from the last 3 years. Those 1000 listings are then scored based on quantitative factors: 3-year average Return on Equity (40% weighting) 3-year cumulative operating profit (40%) Market capitalization (20%) Then, scoring based on qualitative factors is added where present: Appointment of independent outside directors Adoption of IFRS (International Financial Reporting Standards) Disclosure of English earnings information The top 400 listings are selected from the 1000 initially screened. I would also note that no single component makes up more than 1.5% of the index. Components JPN consists of 284 holdings. The fund is heavily weighted in industrials (20.28%), financials (18.96%), and consumer discretionary (17.08%). The top 10 holdings are as follows: KDDI Corporation ( OTCPK:KDDIY ) (Telecommunications – 1.83%) Nippon Telegraph and Telephone (NYSE: NTT ) (Telecommunications – 1.83%) Mitsubishi UFJ Financial Group (NYSE: MTU ) (Financials – 1.75%) Toyota Motor Corp (NYSE: TM ) (Consumer Goods – 1.62%) Mizuho Financial Group Inc (NYSE: MFG ) (Financials – 1.59%) FANUC LTD ( OTCPK:FANUY ) (Industrials – 1.55%) Japan Tobacco ( OTCPK:JAPAY ) (Consumer Goods – 1.54%) Mitsui Fudosan Company ( OTCPK:MTSFY ) (Financials [Real Estate] – 1.52%) SMC Corporation ( OTCPK:SMCAY ) (Industrials – 1.50%) Central Japan Railway Co. ( OTCPK:CJPRY ) (Services – 1.49%) Given that there is no major concentration in any one listing, I would say that this ETF is fairly well diversified. However, it is heavily weighted in the 3 aforementioned sectors, which make up a combined 56.32% of the portfolio. The other 43.5% of the portfolio comes from a combination of information technology, consumer staples, health care, telecommunication services, materials, utilities, energy, and “other.” The least represented sectors are utilities and energy, each at < 1%. Comparison to EWJ One of the most popular and liquid Japan ETFs is the iShares MSCI Japan ETF (NYSEARCA: EWJ ). EWJ provides "targeted access to 85% of the Japanese stock market" by tracking the MSCI Japan Index. MSCI's broad index composition methodology is based on market capitalization and liquidity. In this regard, EWJ's underlying is less selective than JPN's underlying. As a result, the MSCI Japan Index is currently up 14.36% YTD while the JPX Nikkei-400 Index is up about 17.50% YTD. EWJ has the same top 3 sector representations, although they are weighted differently. The most weighted sector in EWJ is consumer discretionary (22%), followed by financials (19.64%) and industrials (18.90%). EWJ is also arguably less diversified, with over 9% of the portfolio's value held in just two listings (Toyota Motor Corporation at 6.11% and Mitsubishi UFJ Financial Group at 3.05%). EWJ's expense ratio, at .47%, is marginally higher than JPN's, which is .40%. Just for reference, other Japan ETFs include: WisdomTree Japan Hedged Equity ETF ( DXJ) WisdomTree Japan SmallCap Dividend ETF ( DFJ) Deutsche X-trackers MSCI Japan Hedged Equity ETF ( DBJP) iShares Currency Hedged MSCI Japan ETF ( HEWJ) Conclusion My personal opinion is that JPN may offer better aimed exposure than EWJ because it tracks an underlying that adheres to a more strict selection process. However, a prospective investor should note that it is fairly illiquid right now, given that it is brand new. Furthermore, it should also be noted that there are other Japan ETFs that are currency hedged, which some may prefer depending on one's view of current macroeconomic conditions. While it is still early in the life of JPN, I think it is a fund worth further investigation if one of your goals is to be invested in quality Japanese equities. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: This article is not intended to be a recommendation to buy or sell Japanese equities. It is intended simply to break down a new product that may be useful to investors who have a long bias on the Japanese equity markets.

ETF Asset Report Of H1: Currency Hedging Tops; U.S. Flops

As we step into the second half of 2015, it might be useful to look at how the $2.16-billion ETF industry performed in the first half of the year. After analyzing, we can conclude that currency-hedged ETFs and developed markets were the star performers in terms of asset gathering, as these saw maximum inflows, while the broader U.S. market was the laggard. Though “Grexit” worries in June had a last-minute impact on the half-yearly asset report, it could not totally derail the original sentiments. Let’s find out the top gainers and losers in terms of asset growth in the first half of 2015 (Source: etf.com ). Gainers Currency Hedging – WisdomTree Europe Hedged Equity ETF (NYSEARCA: HEDJ ) Currency hedging as a technique rocked in the first half of this year when it came to playing the developed economies like Europe. The rounds of monetary easing and the launch of the QE policy revived the eurozone this year. While policy easing devalued European currencies, the greenback strengthened on rising rate worries in the U.S. This policy differential made the currency hedging theme a shining star in 1H. Thanks to this trend, HEDJ, an ultra popular Europe ETF, was at the helm, having amassed over $14 billion in assets so far. Another exchange-traded fund, the Deutsche X-trackers MSCI EAFE Hedged Equity ETF (NYSEARCA: DBEF ), which tracks the stocks from Europe, Australia and the Fast East, also added about $10.7 billion to its asset base and took the second spot. Developed Economies – iShares MSCI EAFE ETF (NYSEARCA: EFA ) Since accommodative policies were common in developed nations, from Europe to Japan to Australia and some emerging economies, EFA and the Vanguard FTSE Developed Markets ETF (NYSEARCA: VEA ) took the third and tenth spots in the list, respectively. EFA hauled in about $6 billion, while VEA gathered about $2.7 billion in assets. Among the developed economies, Japan drew sizeable investor attention on stepped-up economic stimulus and after having come out of a technical recession in the final quarter of 2014. Though aggressive stimulus devalued the yen and bolstered the appeal for the hedged Japan ETFs, regular funds also did well in the first half. As a result, the WisdomTree Japan Hedged Equity ETF (NYSEARCA: DXJ ) and the iShares MSCI Japan ETF (NYSEARCA: EWJ ) – taking the sixth and seventh spots – saw inflows of $4.4 billion and $3.24 billion, respectively. Europe ETFs also gave an all-star performance, despite Greek debt default worries. Accordingly, the Vanguard FTSE Europe ETF (NYSEARCA: VGK ) and the iShares MSCI Germany ETF (NYSEARCA: EWG ) – the eighth and ninth position holders, each stacked up over $2.7 billion in assets. Vanguard ETFs – Vanguard Total Stock Market ETF (NYSEARCA: VTI ) and Vanguard S&P 500 ETF (NYSEARCA: VOO ) Since the relatively smaller market cap U.S. stocks rocked the show in 1H being better bets to guard from the rising dollar, the success behind VTI was self-explanatory. As the name suggests, VTI targets stocks across the capitalization spectrum and amassed about $4.9 billion assets. However, this does not seem the sole reason for the fund’s success. Vanguard’s low-cost approach was immensely popular in the last few years, which is why the issuer saw its asset base growing by leaps and bounds. Probably this was why VOO saw net asset inflows of $4.5 billion in 1H, despite the broader market underperformance. Losers U.S. – SPDR S&P 500 ETF Trust (NYSEARCA: SPY ) SPY, having witnessed an outflow of $42.7 billion in assets to-date, was the hardest hit. Though it started to gain traction on several occasions this year in line with the broader U.S. economic recovery, it could not woo investors. After all, the S&P 500 was flat in the first half. A soaring greenback and a harsh winter in the first quarter wrecked havoc on this benchmark index. Another fund by iShares, the iShares Core S&P 500 ETF (NYSEARCA: IVV ), also lost about $2.37 billion in assets. Investors should note that other ultra-popular ETFs that track key U.S. bourses like the Nasdaq and Dow Jones saw assets bleeding out of their products. The PowerShares QQQ Trust ETF (NASDAQ: QQQ ), which looks to track the tech-heavy Nasdaq, shed about $2.83 billion in assets and became the third-highest loser of 1H. The SPDR Dow Jones Industrial Average ETF (NYSEARCA: DIA ) too was in no better position, having lost about $1.67 billion in assets. Emerging Markets – iShares MSCI Emerging Markets (NYSEARCA: EEM ) The fund comes as a distant second, seeing a net exodus of about $3 billion in assets. The Fed rate hike worry was the major reason for investors’ aversion to the space. An anticipation of a cease in cheap dollar inflows may have caused investors to flee the space. Rate-Sensitive Sectors – Consumer Staples Select SPDR ETF (NYSEARCA: XLP ) and iShares U.S. Real Estate ETF (NYSEARCA: IYR ) Rate hike concerns sent jitters in the high-yielding sectors of the U.S. economy, leading investors to shy away from consumer staples and REIT ETFs, known for their high dividend yield. As a result, XLP had to sacrifice about $2.66 billion in net assets, while IYR surrendered about $1.61 billion. Original Post