Rocky June Sees Record ETF Withdrawals

       By Chris Dieterich 

    NEW YORK--U.S.-listed exchange-traded funds saw their largest monthly cash outflow on record in June, as global stock and bond markets quaked over worries about central bank stimulus and China's slowing growth.

    Nearly $12 billion came out of ETFs in June, biggest month of withdrawals ever for the fast-growing ETF industry, according to IndexUniverse.

    It was a dour end to the second quarter, and the setback in fund flows snapped a 16-month streak of consecutive monthly inflows. U.S.-listed ETFs are now on pace to trail 2012's flows with six months remaining in the year. ETFs have seen about $73 billion in net inflows so far in 2013, compared with $76 billion through the first half of last year. In 2012, the ETF industry saw a record $188 billion in inflows.

    In the second quarter, the market's largest gold fund saw by far the biggest withdrawals. Gold prices slumped 23%, the worst quarterly decline since at least 1975 on a percentage basis. The SPDR Gold Trust (GLD) saw outflows of $11.5 billion, enough to drop the $37 billion fund two slots, to fifth, on the list of the market's largest funds, according to data provider XTF. Investors banished gold as persistently low inflation and the prospect of reduced central bank easing pinched the precious metal's appeal as hedge.

    Emerging-market equity ETFs also had a grim quarter. The $35 billion iShares MSCI Emerging Markets (EEM) lost $6.7 billion in the quarter, while the $48 billion Vanguard FTSE Emerging Markets ETF (VWO) lost $3.7 billion. Falling growth estimates in China, the world's second-largest economy, as well as unrest in countries like Turkey and Brazil led to EM stocks to badly trail global markets.

    The market's largest bond funds also were hit hard as rates ticked higher as the Fed signaled intentions to trim stimulus efforts should the economy improve. The $16 billion iShares Barclays TIPS Bond (TIP) saw outflows of $3.2 billion in the second quarter. The $20 billion iShares iBoxx Investment Grade Corporate Bond ETF (LQD) saw outflows of $3 billion.

    High yield bond funds like the $9.4 billion SPDR Barclays High Yield Bond (JNK) saw outflows of $2.3 billion, while the $14 billion iShares iBoxx High Yield Corporate Bond (HYG) lost $1.1 billion.

    Rising interest rates-and worries they could go higher still-have fueled demand for ETFs holding bonds with shorter durations, those least sensitive to an uptick in yields. In the second quarter, the $4.7 billion iShares Short Treasury Bond (SHV), which holds Treasury bonds that mature in less than one year, took in $1.5 billion. Meanwhile, the $2 billion iShares Floating Rate Note (FLOT), which tracks bond with movable interest rates, took in $1.1 billion.

    The biggest second-quarter beneficiary of inflows in the ETF market was a repeat from the first quarter. The WisdomTree Japan Hedged Equity (DXJ) raked in $4.2 billion from April through June. So far in 2013, the $9.9 billion ETF has absorbed $8.1 billion, the bulk of its total assets.

    The ETF, which is made up of export-oriented Japanese stocks and short yen positions, has benefited mightily from a roaring Japanese stock market and a falling yen. The ETF had shot up 43% in 2013 to its peak on May 22. Just as suddenly, Japan's benchmark Nikkei Stock Index plunged into a so-called bear market--more than 20% from its high--with traders citing disappointment that Japan's central bank did not go further last month to take action to stimulate the country's economy.

    The swoon was a blow for the WisdomTree ETF, but it managed to retain the bulk of its newly received inflows, and remains up 26% this year.

    Another Japan stocks fund, the $11 billion iShares MSCI Japan ETF (EWJ), which gained $3.5 billion in flows during the second quarter.

    Write to Chris Dieterich at