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ETF News And Commentary

After a lackluster performance last year, bond ETFs, in particular government, have been shining in recent sessions as the top asset gainers. Investors continued to pour money into these funds on tumbling interest rates even with reduced Fed bond buying. In addition, yields on the 10-year note are hovering near their six-month low, propelling the bond prices higher.

Further, concerns over rising interest rates sooner than later has been faded with the Fed’s latest comment of keeping the short-term interest rates near zero for a considerable period of time. This has resulted in record inflows into the funds that focus on Treasuries and include U.S. government bonds with duration of six years or longer (read: 3 Bond ETFs Surging as Interest Rates Tumble).

With that being said, the iShares 7-10 Year Treasury Bond ETF ((IEF - ETF report)), with an asset base of around $9.8 billion and average daily volume of about 1.4 million shares, pulled in more than $3.3 billion in capital last week. This fund provides targeted exposure to mid-term securities with average maturity of 8.38 years and effective duration of 7.52 years by tracking the Barclays U.S. 7-10 Year Treasury Bond Index.

The product has a lower default risk as it focuses on top-rated bonds by Moody’s and the S&P. IEF is one of the low cost choices in the bond space, charging just 15 bps in annual fees. It has a Zacks ETF Rank of 3 or ‘Hold’ rating with High risk outlook. The ETF added just 0.11% last week.

Apart from Treasuries, investors are also favoring emerging market funds as these appear cheaper than the developed market counterparts. Notably, the most popular iShares MSCI Emerging Markets ETF ((EEM - ETF report)) has gathered over $365 million in assets, propelling its total base to $38.4 billion. The third largest and popular iShares Core MSCI Emerging Markets ((IEMG - ETF report)) has accumulated nearly $296 million, having a total asset base of around $4.6 billion.  

Both the emerging market funds gained nearly 0.5% over the past week and have a Zacks ETF Rank of 3 or ‘Hold’ rating with Medium risk outlook (read: Emerging Market ETFs See Inflows: 3 ETFs to Pick).

U.S. Equity ETFs Losing Appeal

Though the S&P 500 index hit the 1,900 milestone last week, concerns over the health of the overall economy, small caps’ shake-up, and sharp decline in high-flying growth stocks of last year are keeping skeptics out of the equity markets. This is particularly true, as the U.S. stocks appear expensive on many valuation metrics.  

As a result, U.S. broad equity ETFs saw huge outflows last week with ultra-popular SPDR S&P 500 ((SPY - ETF report)) leading the way. The fund lost around $4.3 billion in capital, bringing its asset base to under $154 billion. This ETF provides exposure to the large cap segment of the broad U.S. equity market by tracking the S&P 500 index, and holds 503 stocks in its basket (read: 3 Non-Leveraged ETFs Beating SPY).

Apple (AAPL) and Exxon Mobil (XOM) occupy the top two positions with 3.2% and 2.6% of assets, respectively. Other securities hold less than 1.80% share. The fund is widely spread across number of sectors with information technology, financials, health care, consumer discretionary, industrials and energy accounting for double-digit exposure.

The product charges 9 bps in fees per year and trades in average daily volume of more than 111 million shares. The ETF was up about 1.2% last week. Another large cap ETF – iShares Core S&P 500 ((IVV - ETF report)) tracking the same index – shed $1.8 billion last week. Both SPY and IVV have a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook (see: all the Large Cap ETFs here).

Apart from large cap, funds in the small cap space like ultra-popular iShares Russell 2000 ((IWM - ETF report)) and mid caps like SPDR S&P MidCap 400 ((MDY - ETF report)) have also seen asset outflow of $1.7 billion and $216 million, respectively. Both the funds added 2.2% and 1.3%, respectively, in the past one-week and have a Zacks ETF Rank of 3 or ‘Hold’ rating.

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