Weekly ETF Roundup: International & Bond Win, US Equity Lags

Although the U.S. stock market ended the week on a positive note, concerns over speedy rates hike unnerved investors. This is especially true as a stronger economy, signs of a pickup in inflation and Fed minutes could compel the Fed to raise interest rates more times than three-liftoffs penciled for this year.

Against such a backdrop, ETFs overall gathered about $4.9 billion capital last week, with international equity ETFs leading the way higher with $4.5 billion inflows, closely followed by $2 billion in U.S. fixed income ETFs. However, U.S. equity ETFs shed more than $2.4 billion, per etf.com.

International ETFs Outperform

The ongoing chaos in the U.S. market coupled with strong fundamentals has made international investing tempting. The major catalysts include pick-up in economic activities especially in Eurozone and China, booming trade, strong corporate earnings and a rise in commodity prices. As such, iShares Core MSCI Emerging Markets ETF (IEMG) topped the list of inflows last week, gathering $1.3 billion in its asset base. This fund offers exposure to a broad basket of 1,917 emerging market stocks with an expense ratio of 0.14%. It has a Zacks ETF Rank #3 (Hold) and gained 0.04% last week (read: Will EM & Asia Outperform U.S. ETFs in the Year of Dog?).

Vanguard FTSE Developed Markets ETF (VEA) and iShares Core MSCI EAFE ETF (IEFA) accumulated $475 million and $374 million, respectively, in its asset base. Both funds target the developed market with a well-diversified portfolio. VEA charges a lower fee of 0.07% while IEFA costs one bps more. Both funds have a Zacks ETF Rank #3 and were up a modest around 0.05%.

Bond ETFs Rock

Despite the rise in yields, bond ETFs did not lose their appeal due to their bargain price. This is because the 10-year Treasury yields peaked to around 2.95% in mid-week, much lower than the 3% threshold which investors were fretting about, before falling to as low as 2.86% later in the week. The SPDR Bloomberg Barclays High Yield Bond ETF (JNK - Free Report) was the biggest beneficiary of this trend, with inflows of nearly $488 million. It seeks to offer a diversified exposure to U.S. dollar-denominated high yield corporate bonds with above-average liquidity. The fund lost 0.2% last week and has a Zacks ETF Rank #4 (Sell) (read: What Investors Are Dumping Junk Bond ETFs).

U.S. Equity ETFs Lost Luster

While Vanguard S&P 500 (VOO - Free Report) tracking the S&P 500 index was the second asset gainer, having accumulated $504 million last week, most of the ultra-popular equity ETFs lost luster. SPDR S&P 500 (SPY - Free Report) was the most-hated ETF with massive outflows of $1.3 billion, followed by $938 million for SPDR Dow Jones Industrial Average ETF (DIA - Free Report) and $743 million for iShares Russell 2000 ETF (IWM - Free Report) . SPY also tracks the S&P 500 while DIA targets the blue-chip companies in the Dow Jones Industrial Average. The former gained 0.6% and has a Zacks ETF Rank #3 while the latter having a Zacks ETF Rank #2 (Buy) delivered 0.4% returns.

Meanwhile, IWM tracks the small-cap Russell 2000 Index and gained 0.4%. It also has a Zacks ETF Rank #3. The SPDR S&P MIDCAP 400 ETF (MDY - Free Report) , which targets the mid-cap segment of the broad U.S. equity market, pulled out more than $224 million from its asset base. It added 0.2% last week and has a Zacks ETF Rank #3.

Further, five sector State Street funds, namely Energy Select Sector SPDR Fund (XLE - Free Report) , Health Care Select Sector SPDR Fund (XLV - Free Report) , Industrial Select Sector SPDR Fund (XLI - Free Report) , Technology Select Sector SPDR Fund (XLK - Free Report) and Financial Select Sector SPDR Fund (XLF - Free Report) , are among the top 10 asset losers. These products saw outflows in the range of $300-$500 million. XLK and XLF have a Zacks ETF Rank #2 while the rest carry a Zacks ETF Rank #3 (read: These Tech ETFs Dispel Rate Hike Fears, Hit 52-Week High).

Gold and Short Treasury ETF Gained Traction  

While rising yields diminished the attractiveness of the yellow metal since it does not pay interest like fixed-income assets, a drive to hedge against inflation pushed investors to gold. As a result, the ultra-popular product, SPDR Gold Trust ETF (GLD - Free Report) , tracking the bullion accumulated around $282 million. It shed 1.4% last week and has a Zacks ETF Rank #3 (read: 5 ETF Ways to Trade Surging Inflation).

On the other hand, higher rates have pushed investors’ interest to short-duration bond ETFs like iShares Short Treasury Bond ETF (SHV), which acts as a hedge to rising rates. The fund is actively managed and seeks to manage interest rate risk while maximizing current income through diversified exposure to short-term bonds. It has gathered $282 million in its asset base and delivered flat returns over the past five days. The fund has a Zacks ETF Rank #3 (read: 6 Ways to Build a Rate-Proof Portfolio With ETFs).

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