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Rate bets spur record $1B inflow to emerging markets ETF

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The second largest ETF for emerging market equities received a record one-day inflow of more than $1 billion Wednesday, as investors pared back U.S. interest rate bets for next year.

The iShares Core MSCI EM ETF (IEMG) saw its market capitalization climb back above the $50 billion mark for the first time since June, as dovish comments from Fed Chairman Jerome Powell revived global demand for riskier assets.

"Interest rates are still low by historical standards, and they remain just below the range of estimates of the level that would be neutral for the economy — that is, neither speeding up nor slowing down growth," Powell said.

BlackRock rolled out IEMG in 2012 as a cheaper alternative to its benchmark iShares MSCI Emerging Markets ETF. Its expense ratio stands at 14 basis points versus 69 basis points for the latter fund. After a slow start, IEMG is now nipping on the heels of Vanguard’s market leader (VWO) with $57 billion.

Fees were nearly half the price of the top-performing active funds.
September 4

IEMG had already received inflows of about $2.3 billion this month, before investors fired the billion-dollar bazooka that spurred a 2.4% rally on Wednesday. Sustained inflows have helped its market capitalization rise some $8 billion this year despite a price plunge of more than 10%.

Another indicator of bullish sentiment: Short traders are pruning their bets the ETF will fall, covering $818 million of bearish positions since Nov. 5.

Developing-economy stocks have erased more than $5 trillion in this year’s sell-off and trade below the average valuation of the past 13 years.

Bloomberg News