ETF October Flows Driven by Inflation, Weak Dollar Fears

November 12, 2009 ( – Investor inflation and weak dollar concerns that affected September ETF flows were prevalent once again in October, according to Morningstar.

Overall ETFs saw slightly more than $8 billion in October net inflows, bringing the year-to-date total net inflows to more than $63.9 billion. Industrywide AUM as of October 31 was $699.2 billion, down slightly from the previous month thanks to market performance.

Taxable-bond ETFs saw roughly $2.7 billion in net inflows for the month, Morningstar said.

Treasury Inflation-Protected Securities (TIPS) continued to be an investor favorite to hedge against inflation, as iShares Barclays TIPS Bond TIP took in nearly $668 million in net new assets in October and about $7.2 billion year to date.

Similar to the ETF situation in September, investors were cautious about potential interest-rate hikes by flocking to short-duration bond ETFs. Leading the way were iShares Barclays 1-3 Year Credit Bond CSJ and Vanguard Short-Term Bond BSV, which attracted $557 million and $338 million in net new assets in October, respectively.

Long-term fears of a weak dollar also remained at the forefront of investors’ minds, Morningstar reported.

International bond ETFs had a strong month. After amassing $299 million in new assets in October, iShares JPMorgan USD Emerging Markets Bond EMB now has $845 million in total assets under management.

SPDR DB International Government Inflation-Protected Bond WIP, SPDR Barclays Capital Short-Term Treasury Bond BWZ, SPDR Barclays Capital International Treasury Bond BWX, PowerShares Emerging Markets Sovereign Debt PCY, iShares S&P/Citi 1-3 Yr International Treasury Bond ISHG, and iShares S&P/Citi International Treasury Bond IGOV chipped in another $435 million combined.

Meanwhile, for the second consecutive month, the U.S. stock asset class was the only asset class to see net redemptions in October, at approximately $3.8 billion. Topping the list was the S&P 500-tracking SPDRs SPY, which experienced more than $2 billion in net outflows in October and has shed $33 billion in assets year to date.

ETFs offering exposure to commodities or commodity-based strategies saw net inflows of about $567 million in October after attracting more than $1.4 billion in September. Back to claim the top spot was United States Natural Gas UNG with roughly $285 million in inflows last month.

Investors fled crude oil last month, as the top four funds on the category's outflows list were all linked to "black gold." United States Oil USO shed the most assets with roughly $606 million heading for the exits last month.

Interestingly, there were some contrarian ETF investors who piled into PowerShares DB US Dollar Index Bullish UUP. That ETF saw $231 million in net inflows last month, equivalent to about one third of the fund's total AUM. In fact, the unexpected surge in interest for this niche ETF product even led the fund to halt trading temporarily on November 5.

Also, year to date, leveraged and inverse ETFs have attracted roughly $12.7 billion in net new assets. ETFs offering leveraged long exposure have seen outflows of $6.1 billion, while ETFs offering inverse and leveraged inverse exposure have seen $18.8 billion in net inflows.

Similar to the trends witnessed throughout the year, the October flows were led by the funds that offer daily "short" to their respective benchmarks. Short S&P 500 ProShares SH and UltraShort S&P 500 ProShares SDS had combined net inflows of nearly $350 million last month, a signal that some feel indicates the market's rally has run its course.

Morningstar’s full monthly report is available here .