Hedge funds bailed out of emerging markets in September, driven in part by heightened redemptions.

That helped spark a large decline in most of the emerging market indexes. The Barclay Emerging Markets Index, for example, fell nearly 8 percent in September, the worst since October 2008, according to TrimTab. That all occurred in tandem with $5 billion in hedge fund redemptions. Had some of these funds been able to stay invested, they would have fared okay, thanks largely to exchange traded funds (ETFs), which enjoyed massive inflows recently.

Over the past month, investors have poured money into emerging market ETFs, including the MSCI Emerging Markets Index Fund and the Vanguard MSCI Emerging Markets ETF. That has coincided with a ferocious rebound in ETF indexes as of late. At least one index is up 20 percent over the last month or so. This suggests yet again that ETFs are now large enough to dominate markets at times.

Limited partners in emerging market hedge funds have no doubt taken note. Some may be inclined to at least think about using ETFs instead of hedge funds for this sort of exposure. Certainly, they offer a lot more flexibility, though not the leverage. In any case, the heft and influence of ETFs continue. More institutions may decide to jump in sooner rather than later.

For more:
- here's the material from TrimTabs   

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