ETF redemptions at highest level since 2008

Global ETF redemptions reached the highest level since June 2008 last week, with the majority in the SPDR S&P 500 ETF.

There were US$15bn worth of redemptions in equity ETFs, according to Cowen; $14bn of those came from the US and almost $10bn were in State Street Global Advisors' SPDR S&P 500 ETF (SPY).

Although the US market has been volatile for several weeks - the S&P 500 has fallen 16% since the end of July - and trading has spiked, it is only now that the redemptions have picked up pace.

"The primary market is generally a domino effect, things start to happen later," says Laurent Kssis, head of ETF advisory and sales at Cowen.

"In between there are market makers and they are managing inventories so they might not redeem straight away... market makers tend not to hold inventories for too long in depreciating markets."

Trading volumes remain high. Within 20 minutes of the US market open on 12 September, Kssis said there had been 32 million shares in the SPY traded; that is approximately 10% of the current average daily trades, which have doubled since the beginning of the year.

Despite large outflows SPY still has $82bn in assets and the SPDR Gold Shares (which momentarily took over SPY last month) has $73bn.

Kssis adds that when redemptions start picking up in the US, others tend to follow suit.

The balance of the outflows last week came from European ETFs, Cowen notes. Emerging markets outflows were moderate at €1bn.

There was some positive news from the ETF market, fixed income ETFs saw more than $2.8bn of inflows (the highest in eight weeks) driven by corporate bonds. Money market inflows have also been strong at $12bn globally.

The top creation was in iShares' DAX ETF for the fifth week in a row; last week saw orders of €252mn.