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The second quarter of 2013 saw some volatility in a number of key market sectors. This was largely brought about by worries over the Fed, although deteriorating global conditions also played a part in the sluggish trading as well.
In the ETF industry, a number of funds managed to thrive in this uncertain environment, attracting billions from investors. This helped to offset the big losses in assets that were seen in a number of emerging market, long term bond, and commodity ETFs in the time frame (see Winning ETF Strategies for the Second Half of 2013).
Particularly, the following groups of ETFs saw the biggest inflows in the period from April to June:
Low Duration Risk Bond ETFs
As Treasury yields finally began to rise in the second quarter, many investors began to reevaluate their bond holdings. This trend was especially prevalent in the long end of the curve, as bonds with high duration risk are the most sensitive to any change in rates.
However, investors didn’t abandon bond ETFs entirely, as they instead shifted towards shorter-duration securities for lower risk fixed income exposure. These bonds were less impacted by the rising rate trend, while still providing investors with access to fixed income.
Some of the biggest asset winners in this regard were the PowerShares Senior Loan ETF (BKLN - ETF report) and the iShares 1-3 Treasury Bond ETF (SHV - ETF report), as these both added about $1.5 in assets in the time frame. This was good enough to put them both into the top five for assets gatherers in the quarter, and beat out all other bond funds in the process (see Are Short Term Bond ETFs the New Safe Haven?).
Investors are looking for strong earnings for the financial sector and many are clearly betting on this growth industry for their portfolios. It also doesn’t hurt that recent trends have given banks wider yield curves and have increased the demand for a number of other financial service firms—like exchanges—boosting the prospects across the space.
In this environment, a number of financial ETFs saw big gains in terms of assets, but one stole the show; the Financial Sector Select Sector SPDR ETF (XLF - ETF report). This product added about $2.1 billion in assets for the quarter, putting it into the top three for capital accumulation in the period.
Japanese stocks experienced a bout of volatility in the second quarter as many began to question the wisdom of ‘Abenomics’. Funds tracking this market saw big losses in May and early June, but have rebounded nicely as of late, and are still putting up S&P 500 crushing returns YTD (read Direxion Launches Leveraged Japan ETFs).
Even with this uncertainty, investors piled into Japan ETFs in droves. The ‘regular’ ETF from iShares, the MSCI Japan ETF (EWJ - ETF report), added about $3.5 billion while the currency hedged ETF, the Japan Hedged Equity Fund (DXJ - ETF report) from WisdomTree saw $4.2 billion in inflows, enough to put it atop the ETF charts for the quarter.
For more on the top ETFs in the second quarter, make sure to watch our short video on the subject below:
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