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Monday, April 6, 2015

Performance Chasers`: Individual Investors...and Many of Their Advisors Too

Etf,com has reported in flows in and out of ETFs

The flows into ETFs over good evidence that investors are performance chasers and because of this they seldom get the returns of the asset classes they invest in...because they buy high and sell low.
This is likely the case with the currency hedged European stock ETFs.. HEDJ the fund that was top on the inflow chart below more than doubled its assets under management during the quarter. HEDJ has gained 23.6% over the past 12 months and 20.1% year to date. This means less than half the investors in HEDJ have captured all of these returns. Whatever the future outlook for HEDJ these investors have missed a good part if not most of the returns for at least the rest of the year.

And when the trend reverses,if past behavior is indicative of behavior investor in the past, they will sell out at best with only a portion of the long term returns,if not sell at a loss.

Top Gainers Q1 2015
TickerFundIssuerFlows ($M)AUM ($M)Turnover
HEDJWisdomTree Europe Hedged EquityWisdomTree10,141.7117,313.7822,382.36
DBEFDeutsche X-trackers MSCI EAFE Hedged Equity ETFDeutsche Bank5,109.657,235.478,018.95
VTIVanguard Total Stock MarketVanguard3,180.6554,752.3120,703.77
VOOVanguard S&P 500Vanguard2,971.2930,637.0322,959.84
LQDiShares iBoxx $ Investment Grade Corporate BondBlackRock2,728.9322,417.5119,319.74
DXJWisdomTree Japan Hedged EquityWisdomTree2,482.3115,782.4918,712.83
HYGiShares iBoxx $ High Yield Corporate BondBlackRock2,149.8216,711.8439,471.40
IEFAiShares Core MSCI EAFEBlackRock2,034.025,418.034,306.25
HEFAiShares Currency Hedged MSCI EAFEBlackRock1,991.482,123.692,362.75
USOUnited States OilUS Commodity Funds1,763.622,792.2839,175.59

 The market chasing of investors can be seen in the flows into international equities overall. Particularly disconcerting to individual investors is the indication that not only do individual investors follow the unwise strategy of performance chasing...if they pay an investment advisor he seems likely to be doing exactly the same thing, Quite ironic since the benefit of using an advisor should be to prevent the behavior so prevalent among individual investors...buying high and selling low.:
Allocation Shift?
International equities gathered about $42.5 billion in the first quarter, nearly half of it in currency-hedged strategies.

At the same time, U.S. equities recorded net outflows of more than $11 billion. The least-popular fund was the SPDR S&P 500 ETF (SPY | A-98), which bled almost $31 billion in assets. While SPY is a trading vehicle, and its flows are often quite exaggerated relative to the rest of the market, it nonetheless is something of a weather vane when it comes to reading investor sentiment.

Indeed, many financial advisors are moving to reallocate away from U.S. stocks following more than a decade of U.S. outperformance relative to a variety of foreign markets, not least Europe's.

Biggest Losers Q1 2015
TickerFundIssuerFlowsAUM ($M)Turnover
SPYSPDR S&P 500SSgA-30,958.95185,413.711,700,430.71
EEMiShares MSCI Emerging MarketsBlackRock-3,166.1429,574.92135,500.34
XLFFinancial Select SPDRSSgA-2,653.3918,043.4553,904.75
QQQPowerShares QQQInvesco PowerShares-2,651.4838,600.08210,737.84
IVViShares Core S&P 500BlackRock-2,362.6068,742.6160,847.35
XLPConsumer Staples Select SPDRSSgA-1,754.248,261.7826,904.59
IYWiShares U.S. TechnologyBlackRock-1,688.953,000.434,544.27
XLIIndustrial Select SPDRSSgA-1,389.787,763.8135,897.54
ACWIiShares MSCI ACWIBlackRock-1,258.276,311.557,079.25
IYFiShares U.S. FinancialsBlackRock-1,231.981,255.043,398.67

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