With Rates Retreating, Bonds Back in Fashion

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1 Defensive ETFs: December U.S. ETF 2011 Flows: Performance May 2014 FINANCIAL PRODUCTS RESEARCH ETF RESEARCH January & STRATEGY 9, 2011 U.S. ETF flows were $12.7 billion in May representing 0.7% of assets Bonds were a huge theme with IEF (ishares 7-10 Year Treasury) representing almost half the flows U.S. equities were for sale while International stocks were in demand and concentrated in developed Energy, Real Estate and Industrials were bought while Financials, Tech and Utilities were for sale Flows by Category U.S. ETF flows were $12.7 billion in May representing 0.7% of assets. Fixed Income was a key driver up 4% in May with IEF (ishares 7-10 Year Treasury) representing almost half the total flows for the month. Equities were up modestly by $2.8 bln or 0.2%. The conservative nature of flows is echoed by inverse funds being up 4% while levered long funds were down 3%. Multi-Asset was up while Commodities were essentially flat. In this report we highlight S&P 500, U.S. Government, EAFE and Emerging Markets, Page 3. Flows by Geography The focal point of demand in May was U.S. Fixed Income up $9 bln or 4%. Money flows were very focused on IEF which took in over $5 bln of assets alone. U.S. Equities on the other hand were modestly for sale with $3.8 bln in outflows representing -0.4%. SPY, IWM and IVV took the brunt of these outflows. International developed stocks were in good demand seeing $3.8 bln in inflows representing 2% with VEA, VGK and EZU seeing good demand. Emerging Markets to a lesser extent were also bought, up $1.9 bln or 1% focused on EEM. International Fixed income was essentially muted. Canadian equities saw a marginal uptick. Flows by Sector Energy (up $2 bln), Real Estate (up $1.9 bln) and Industrials (up $700 mln) led asset flows last month, specifically with IYR, VNQ, XLE and XLI. Basic Materials and Telecom were also up slightly. Financials (down $1 bln), Technology (down $900 mln) and Utilities (down $474 mln) lead on the downside. Key funds for sector outflows included XLF, XLK and XLU. Health Care and Consumer noncyclicals were also down slightly. Table 1 - ETF Flows by Category - May 2014 Category AUM ($M) Flow ($M) % AUM Equity $1,405,455 $2, % Fixed Income $281,385 $9,438 4% Commodity $64,462 $42 0.1% Multi-Asset,321 $380 4% Levered Long $21,340 -$739-3% Inverse $20,511 $834 4% Total Flow $1,803,475 $12, % Source: National Bank Financial, Bloomberg Table 2 - ETF Flows by Geography* - May 2014 Geography AUM ($M) Flow ($M) % AUM U.S. $1,223,577 $5, % U.S. Equity $970,037 -$3, % U.S. Fixed Income $253,541 $9,072 4% Emerging Markets $145,171 $2,012 1% EM Equity $134,979 $1,910 1% EM Fixed Income, % International Developed $219,590 $3,802 2% Int'l Developed Equity $215,111 $3,759 2% Int'l Developed Bond $4,479 $44 1% Global/Regional $94,966 $1,012 1% Gbl/Reg Equity $81,815 $792 1% Gbl/Reg Fixed Income $13,151 $220 2% Canada $3,536 $90 3% Canada Equity $3,512 $90 3% Canada Fixed Income $24 0.0% Total Displayed $1,686,840 $12, % Equity $1,405,455 $2, % Fixed Income $281,385 $9,438 4% *Includes only Single Long Equity or Fixed Income ETFs with the above specific geographic mandates; Table 3 - ETF Flows by Sector* - May 2014 Sector AUM ($M) Flow ($M) % AUM Real Estate $46,209 $1,918 4% Energy $44,845 $1,956 5% Financials $30,863 -$994-3% Technology $31,463 -$883-3% Health Care $31,364 -$364-1% Basic Materials $19,974 $257 1% Multi-sectors $16,962 $49 0.3% Industrials $16,815 $702 4% Consumer, cyclicals $12,677 $19 0.2% Consumer, non-cyclicals,454 -$149-1% Utilities $8,989 -$474-5% Telecom $1,966 $89 5% Total Displayed $272,583 $2, % *Includes only Single Long Sector Equity ETFs with the above specific sector mandates; Includes all geographic focus;

2 Flows by Credit Bonds were bought across the board with the heaviest concentration in U.S. Government issues. As mentioned IEF was the standout taking in over $5 bln. Investment Grade and High Yield were also up 2% and 3%, respectively, with key funds being LQD (ishares iboxx Investment Grade) and HYG (ishares iboxx High Yield). Flows by Maturity Mid-Term was heavily favored with the IEF flows, but broad and even some short-term maturities were also in demand. Broad maturities were mainly driven by the funds mentioned above, LQD and HYG. Table 4 - ETF Flows by Credit* - May 2014 Credit AUM ($M) Flow ($M) % AUM Investment Grade $140,991 $2,208 2% U.S. Government $49,599 $5,207 12% High Yield $48,615 $1,362 3% Aggregate $17,374 $82 0.5% Other $7,694 $134 2% Total Displayed $264,273 $8,992 4% *Includes only Single Long Fixed Income ETFs with the above specific credit mandates; Excludes Hybrid ETFs; Table 5 - ETF Flows by Maturity* - May 2014 Duration AUM ($M) Flow ($M) % AUM Broad/Mixed $133,098 $2,836 2% Short Term $72,768 $ % Mid Term $32,499 $5,547 21% Floating Rate $12,442 -$181-1% Long Term $6,888 $36 0.5% Target Maturity $6,577 $220 3% Total Displayed $264,273 $8,992 4% *Includes only Single Long Fixed Income ETFs with the above specific credit mandates; Excludes Hybrid ETFs; Top Single Long ETF Inflows & Outflows INFLOWS MAY 2014 FLOWS OUTFLOWS Top Single Long ETF Inflows Top Single Long ETF Outflows Ticker Name Flow ($M) % AUM Ticker Name Flow ($M) % AUM 1 IEF ishares 7-10 Year Treasury Bond ETF $5, % 1 SPY SPDR S&P 500 ETF Trust -$4,029-3% 2 EEM ishares MSCI Emerging Markets ETF $881 2% 2 IWM ishares Russell 2000 ETF -$3,829-14% 3 VEA Vanguard FTSE Developed Markets ETF $819 4% 3 IVV ishares Core S&P 500 ETF -$932-2% 4 IYR ishares US Real Estate ETF $819 18% 4 XLF Financial Select Sector SPDR Fund -$711-4% 5 QQQ Powershares QQQ Trust Series 1 $756 2% 5 XLK Technology Select Sector SPDR Fund -$670-5% 6 VGK Vanguard FTSE Europe ETF $754 5% 6 XLU Utilities Select Sector SPDR Fund -$559-9% 7 EZU ishares MSCI EMU ETF $649 6% 7 XLV Health Care Select Sector SPDR Fund -$415-4% 8 VNQ Vanguard REIT ETF $638 3% 8 EWJ ishares MSCI Japan ETF -$398-3% 9 XLE Energy Select Sector SPDR Fund $516 5% 9 DIA SPDR Dow Jones Industrial Average -$321-3% 10 LQD ishares iboxx $ Investment Grade Corp $463 3% 10 IVW ishares S&P 500 Growth ETF -$318-3% 11 XLI Industrial Select Sector SPDR Fund $444 5% 11 DXJ WisdomTree Japan Hedged Equity Fund -$293-3% 12 OEF ishares S&P 100 ETF $442 11% 12 MDY SPDR S&P MidCap 400 ETF Trust -$272-2% 13 HYG ishares iboxx $ High Yield Corp $399 3% 13 XLP Consumer Staples Select Sector SPDR -$250-4% 14 PFF ishares US Preferred Stock ETF $386 4% 14 IWN ishares Russell 2000 Value ETF -$244-4% 15 IEV ishares Europe ETF $372 11% 15 TLT ishares 20+ Year Treasury Bond ETF -$224-6% 16 IEMG ishares Core MSCI Emerging Markets $366 9% 16 IGV ishares North American Tech-Software -$214-17% 17 VOO Vanguard S&P 500 ETF $338 2% 17 FXI ishares China Large-Cap ETF -$212-5% 18 AMLP Alerian MLP ETF $329 4% 18 IJR ishares Core S&P Small-Cap ETF -$169-1% 19 BND Vanguard Total Bond Market ETF $328 2% 19 MINT PIMCO Enhanced Short Maturity -$163-4% 20 IWD ishares Russell 1000 Value ETF $322 1% 20 IWO ishares Russell 2000 Growth ETF -$156-3% Source: National Bank Financial, Bloomberg Page 2

3 Key Flows of Note Single Long S&P 500 ETFs: U.S. equities were down led by SPY, IWM and IVV, but not materially so. U.S. Government has seen dramatic swings this year with large inflows in May driven mostly by IEF. ishares EAFE ETF (EFA) has been in demand and overall positive through most of this year. Emerging Markets (Equity + Bond) has seen some positive inflows over the past couple of months. Chart 1 - Single Long S&P 500 ETFs (U.S.-Listed ETFs) Chart 21 --Single Long U.S. S&P Govt 500 ETFs (U.S.-Listed ETFs) $15 $280 $60 $5 ($5) () ($15) ($20) ($25) - Left $245 $210 $175 $140 5 $70 $35 $6 $2 ($2) ($6) () - Left $48 $36 $24 $12 Chart 3 - ishares EAFE ETF Assets and Flows Chart 4 - Single Long Emerging Markets ETFs (U.S.-Listed ETFs) $3.5 $2.5 $1.5.5 (.5) - Left $60 $48 $36 $24 $12 $5 ($5) () - Left $200 $160 $120 $80 $40 ($1.5) ($15) Page 3

4 Notes Exchange Traded Funds are open-ended mutual funds in continuous distribution. This report also includes other Exchange Traded Products such as notes, grantor trusts, limited partnerships and unit investment trusts. AUM: Assets Under Management; AUM is expressed in local currency, which is the U.S. dollar for the purpose of this report. Flow: The net dollar amount of fund creations and redemptions for the period based on daily NAV and the change in Shares Outstanding. Flows are expressed in local currency, which is the U.S. dollar for the purpose of this report. Maturity: We categorize fixed income ETFs into the following maturity brackets: - Broad/Mixed: ETF that holds products from more than one maturity bracket - Floating Rate: ETF that mainly invests in floating rate products with periodic interest rate resets - Long Term: ETF that mainly invests in long-term fixed income products and has a weighted average maturity greater than 10 years - Mid-term: ETF that mainly invests in intermediate-term fixed income products and has a weighted average maturity between three to 10 years. - Short Term: ETF that mainly invests in short-term fixed income products and has a weighted average maturity less than three years - Target Maturity: ETF that has a target maturity NAV: Net Asset Value per share. ETF price is used when NAV is not available. %AUM: Flow as a percentage of assets under management from the beginning of the period All numbers are as of last month s final business day. Page 4

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