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ETF Asset Report for August 2020

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Wall Street hit several fresh highs in August as investors rotated into the beaten-down segments of the year — cyclicals. The S&P 500 and the Nasdaq witnessed back-to-back record-setting sessions at the end of the month while the laggard Dow Jones turned positive for the year.

The Nasdaq 100 rose nearly 11% in August compared to a gain of about 7% for the S&P 500, about 6.6% advancement in the Dow Jones and 5.5% for the Russell 2000. The S&P 500, in fact, enjoyed the best August in 34 years.

Strengthening hopes of a coronavirus vaccine, an unprecedented slew of stimulus, rock-bottom interest rates and better-than-feared second-quarter earnings (amid coronavirus-realted woes) perked up investors’ sentiments, leading to a spike in stocks.

In this scenario, we highlight ETF asset flows for the month of August (per

Corporate Bond ETF in High Favor

The low-rate environment and the Fed’s decision to buy corporate bonds led investors to park their money in corporate bond ETFs. The very announcement led Vanguard Total Bond Market ETF (BND - Free Report) to haul in about $2.10 billion in assets in August. Vanguard Short-Term Corporate Bond ETF (VCSH), Vanguard Intermediate-Term Corporate Bond ETF (VCIT) and Xtrackers USD High Yield Corporate Bond ETF (HYLB) attracted about $1.73 billion, $1.07 billion and $1.03 billion in assets, respectively.

Global Stocks in Sweet Spot

There were risk-on sentiments globally in the month of August. iShares Core MSCI EAFE ETF (IEFA - Free Report) added about 5.3% past month. IEFA and Vanguard Total International Stock ETF (VXUS) attracted about $2.06 billion and $963.6 million in assets in August.

Nasdaq-100 Continues to Hog Attention  

The tech-heavy Nasdaq-100 hauled in about $1.76 billion in assets in the month. Technology has been a winning sector amid the coronavirus outbreak as social distancing norms enacted globally to mitigate the spread of the virus compelled people to indulge in online shopping and work as well as learn from home. 

Even though many corners of the global economy have reopened, the trend for work and learn from home should stay strong. This is especially true given that the second wave of contagion has been rife. Meanwhile, big tech companies have reported stellar earnings in Q2, bolstering investors’ confidence even more. Moreover, the Apple stock sizzled in August due to stock-split.

No wonder, Invesco QQQ Trust (QQQ - Free Report) raked in $1.76 billion in August. In fact, the entire U.S. stock market fund Vanguard Total Stock Market ETF (VTI - Free Report) added about $1.85 billion in assets.

TIPS ETF Records Inflows Too

On Aug 27, the Federal Reserve announced a new strategy to bring back the United States to full employment level and drive inflation back to healthier levels. Under the new scheme, the U.S. central bank will seek to achieve inflation averaging 2% over time, counterbalancing below-2% periods with higher inflation "for some time."

The change in the Fed’s tone suggests the its key overnight interest rate, already at rock-bottom levels, will remain so in the medium term as the central bank is striving to drive inflation. The decision to boost inflation caused asset inflows to iShares TIPS Bond ETF (TIP - Free Report) by about $1.30 billion (read: Fed Targets "Average Inflation" of 2%: ETF Strategies to Play).

Growth ETFs Fall Out of Favor

Rising interest rate in the month of August hurt investors’ interest in growth ETFs. Vanguard Growth ETF (VUG - Free Report) and iShares Russell 1000 Growth ETF (IWF - Free Report) saw outflows of about $1.70 billion and $1.30 billion in assets, respectively.

Dividend Aristocrats Too Saw Outflows

Dividend aristocrats, which normally act as safe investments, also recorded outflows in August. Since risk-on sentiments prevailed in August, SPDR S&P Dividend ETF (SDY - Free Report) and ProShares S&P 500 Dividend Aristocrats ETF (NOBL) probably lost about $1.50 billion and $1.03 billion in assets, respectively.

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