Volatility in the global markets reached a heightened level in March thanks to the protracted standoff between Russia and the West on the Ukrainian issue. To add to this, another round of cuts in QE stimulus in the U.S. was another driver in the global investing market.
Some assets held up well despite challenges while some gave up a bit of capital. Let’s see how this scenario has impacted asset growth in the ETF industry last month.
Winners of March
Large-Cap U.S. Equities
After embarking on a soft start to 2014 following a run of weak data points, U.S. markets once again picked up, sending the S&P 500 index to record highs in early March. Despite initial volatility in the indices, investors seem convinced about the continuation of U.S. economic growth. The axe on QE stimulus is also giving cues of sustained economic recovery.
Investors’ preference toward the broader U.S. market can be validated by the recent rush of assets into the products tracking the S&P 500 Index. Notably, the S&P 500 Index is considered a good proxy for the U.S. stock market. In March, iShares Core S&P 500 ETF (IVV) was the top asset gatherer, hauling in around $3.8 billion (as per etf.com).
Two other funds – ProShares Ultra S&P 500 ETF (SSO - ETF report) and SPDR S&P 500 ETF (SPY) – also managed to secure places in the top-10 asset creators. SPY attracted an asset base of $1.39 billion while the double leveraged play on the S&P 500 Index – SSO – amassed about $1.58 billion in March.
Small-Cap U.S. Equities
Not only large-caps, but small cap U.S. equities also grabbed investors’ attention last month. iShares Russell 2000 ETF (IWM) measuring the performance of the small-cap slice of the U.S. equity segment by tracking Russell 2000 Index and ProShares Ultra Russell 2000 ETF (UWM) which offers 2x returns on the same index came second and third in the asset gatherers list.
As we have noticed, the U.S. economy has been delivering assuring job, manufacturing and home building numbers. Notably, the more the U.S. economy doles out hopeful numbers, the higher will be investors’ inclination toward small caps as these stocks mainly revolve around domestic economy and is more immune to external shocks (Read: Time for This Small Cap Value ETF?).
The financial sector has also been in commendable shape. The latest clearance in the Fed’s stress test – a tool to gauge the nation’s financial system’s health – by 29 out of 30 banks speaks of the strength in the financial sector. Also, a potential rise in interest rate with the unwinding of QE taper spurs another round of optimism around the financial sector.
This fundamental reason might have enthused investors to pour cash into Financial Select SPDR ETF (XLF), which accumulated $1.3 billion in assets in the time frame (read: 3 Financial ETFs to Play the Bank Stress Tests).
Surprisingly, the REIT sector has also made it to the top-10 list with Vanguard REIT (VNQ) hoarding about $608.7 million. The Russia’s month-long stand-off with the West actually raised the appeal for safe haven assets like U.S. treasury bonds which in turn pulled the yields down. The reduced yield played a helpful role for the REIT sector (read: 3 ETFs to Play on Ukraine Turmoil).
Not only the REIT sector, the Russian conflict brightened the appeal for the safe haven asset gold as SPDR Gold Trust (GLD - ETF report) also gathered about $582.0 million in assets in March (read: Most ETFs Are Tax Smart, Is Yours?).
Losers of March
However, not all funds saw as much interest in the month. There are also funds which lost assets considerably in March. These include:
Treasury bond ETFs have been one of the most sensitive investment avenues thanks to the Fed’s decision to wrap up its QE stimulus. With the Fed curtailing its bond buying program to $55 billion in March from the original measure of $85 billion a month, concerns of a rising rates were already in place.
To add to this, the Fed, which so far has vowed to keep the short-term rate near the zero level, indicated in its last meeting that it could start raising interest rates six months after it fully wraps up its bond buying program this fall (read: Profit from a Flattening Yield Curve with This ETF).
This has spread jitters across U.S. the Treasury bond investing, with iShares 1-3 Year Treasury Bond ETF (SHY - ETF report) , iShares 3-7 Year Treasury Bond ETF (IEI) and ProShares Ultra 7-10 Year Treasury ETF (UST) taking the top three positions in the asset redemption list. SHY, IEI and UST shed about $3.9 billion, $3.5 billion and $2.9 billion in assets respectively this March.
Another investing option vulnerable to Fed tapering has been emerging markets. The fear of less hot money inflows and some structural issues which are of their own-making made this corner of the investing world see assets gushing out heavily. As a result, iShares MSCI Emerging Markets ETF (EEM) and Vanguard FTSE Emerging Markets ETF (VWO) saw asset drainage of about $641 million and $527 million in March (read: Emerging Market ETFs: Any Bright Spots?).
Investors should also note that while Vanguard FTSE Developed Markets ETF (VEA) generated some assets in March, WisdomTree Japan Hedged Equity (DXJ) lost a little. Investors might have plucked out some assets from Japan as the nation is set to implement a consumption tax in April which might hold back its growing momentum.
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