February ETF Asset Report: EM Gains, U.S. Loses

The month of February became increasingly important after President Donald Trump took office in mid-January. This is because he is expected to announce key policies, which are keenly awaited by global investors.

Since then, there have been quite a few surprises at the U.S. bourses. The S&P 500-based ETF SPY, Dow Jones-based ETF DIA and Nasdaq 100-based QQQ added in the range of 4% to 4.9%. These unexpected gains can be credited to theTrump rally for most part of the month on hopes of fiscal reflation. Let’s take a look at how the $2.78 billion ETF industry performed in February, where a few ETFs emerged as hot favorites, while others fell out of favor. The figures are as per etf.com.

Gainers

Emerging Market – iShares Core MSCI Emerging Markets ETF (IEMG - Free Report)

Emerging market (EM) ETFs have had a great run lately with IEMG amassing about $2.46 billion of assets. Though EMs traditionally underperform in a rising rate environment, the bloc has become a lot more secure in recent times. To boost growth, several emerging economies have been resorting to policy easing via interest rate cuts or by offering some accommodative measures (read: 4 Emerging Market ETFs Poised to Be Great Buys).

Corporate Bond – iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD - Free Report)

Though the possibility of a faster Fed tightening drove the U.S. treasury yields higher and weighed on bond prices, investment-grade corporate bonds like LQD raked in $1.92 billion in assets. The investment grade U.S. corporate bond market has been on the radar lately as it normally yields more than their Treasury counterparts, but at the same time carries only a little more risk. LQD yields about 3.28% annually (see all investment grade corporate bond ETFs here).

Gold – SPDR Gold Trust (GLD - Free Report)

With the market hitting highs, investors seem to have turned cautious and are parking their money into safe-haven securities like gold. GLD added about $1.66 billion in assets lately.

Health Care – Health Care Select Sector SPDR Fund (XLV - Free Report)

After some initial glitches, thanks to the price-gouging issue and uncertainty regarding the repealing of Obamacare, healthcare stocks made a turnaround. Compelling valuation after the recent sell-off and somewhat positive meeting between Trump and drug makers did the trick. Trump also indicated to ease regulatory approvals for pharmaceutical companies for their products easily. As a result, XLV attracted about $1.44 billion in assets.

Losers

S&P 500 – SPDR S&P 500 ETF Trust (SPY - Free Report)

The index is in a rally mode but this could not wipe out fears from the minds of investors. Overvaluation concerns lingered in their psyche. As per Goldman Sachs’ analyst David Kostin, “Cognitive dissonance exists in the U.S. stock market” as there seems to be little synchronization between the ground reality and investors’ hopes.

Goldman commented that the “hope” would push the index to 2,400 before “fear” taking it down to 2,300 by the end of this year. Probably, this is why, the S&P 500-based fund SPY shed about $2.67 billion in assets in the month (read: 5 Alternative ETFs to Avoid 'Cognitive Dissonance' in Market).

Small-Cap – iShares Russell 2000 ETF (IWM - Free Report)

Along with SPY, the small-cap fund IWM too lost around $1.28 billion in assets. Slowdown in small-cap earnings growth, rich valuation after a stupendous rally post Trump win, higher levels of debt and relatively lower greenback actually put small-cap stocks and the related fund in the backseat (read: 5 Reasons Why Small-Cap ETFs Are Lagging Large Caps in 2017).

Dow Jones – SPDR Dow Jones Industrial Average ETF Trust (DIA - Free Report)

Dow Jones-based ETF DIA also lost around $1.09 billion in assets, thanks to the same old overvaluation issues. The fund added over 4% in the last one month (as of February 27, 2017) and about 10% in the last three months. So, investors started reducing their holdings on apprehensions of a correction in the market.

Japan – iShares MSCI Japan ETF (EWJ - Free Report)

Non-currency hedged Japan ETFs like EWJ has seen around $331.5 million of assets gushing out. With the faster Fed rate hike looming large, the greenback should add more strength in the coming days. This in turn would boost the demand for currency-hedged Japan ETFs and suppress its non-hedged version. Probably, suspecting this, the investors dumped the product.

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