Taxable Bond ETFs See Second-Largest Inflow in May: Morningstar

By Melanie Waddell

June 07, 2012 at 09:39 AM

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Flows into taxable bond exchange-traded funds reached just over $7 billion in May, the "second-largest inflow ever" to the asset class, Abe Bailin, an ETF analyst with Morningstar, told AdvisorOne on Thursday.

An analysis by Morningstar of flows into ETFs for May also found that, for the second month in a row, Vanguard saw the largest inflow into ETFs, collecting $3.24 billion in new assets.

The Vanguard Total Bond Market ETF (BND) and the Vanguard S&P 500 ETF (VOO), which gathered $1.2 billion and $644 million, respectively, drove inflows for the firm, Morningstar found.

While ETFs posted "lackluster performance" across the board, those with broad large-cap exposure managed moderate inflows, the Chicago-based Morningstar found. The Vanguard Five Hundred VOO and SPDR S&P 500 SPY collected $644 million and $332 million in May.

Across the board, Morningstar says investors flocked to investment-grade and government bond ETFs and shunned high-yield bond offerings.

The international-stock asset class accounted for the lion's share of May outflows, losing $3.5 billion. "The big story there was the international stock category saw substantial outflows that was pretty much the lion's share driven by money coming out of the emerging markets," Bailin says.

Emerging-markets equity ETFs "provided the fuel for the fire," Bailin says, as EEM and VWO both saw significant outflows. The iShares MSCI Emerging Markets Index (EEM) shed $1.5 billion, while the Vanguard MCSI Emerging Markets ETF (VWO) gave up $622 million.

Although the U.S.-stock asset class saw a net outflow of only $562 million, a number of notable products "bled," Bailin says, namely the iShares Russell 2000 IWM and PowerShares QQQ (QQQ), which gave up $1 billion and $777 million, respectively.

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