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1H Headed Toward Worst Start Since 1970: ETF Asset Flow Report

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Stocks are on track to the worst start since 1970, as quoted on Yahoo Finance. Only five times since 1932 the S&P 500 tumbled 15% or more in the first six months of a year. The S&P 500 is off 17.9% so far this year (as of Jun 24, 2022).

The year so far has been caught up with high inflationary pressure across the world due to supply-chain issues, the Russia-Ukraine war, high energy prices, a commodity super-cycle, a super-hawkish Fed, rising rates across the globe as central banks have been tightening policies to rein in inflation, risk-off trade sentiments and a global market crash.

The S&P 500 and the Nasdaq have entered into correction territory this year as the recessionary fears flared up. The Fed started rate hikes this year and had enacted a 150-bp rise so far this year, which actually caused recessionary fears. Against this backdrop, below we highlight a few ETFs that gained maximum assets and that lost the same this year.

S&P 500 Win

Vanguard S&P 500 ETF (VOO) and iShares Core S&P 500 ETF (IVV) amassed about $24.7 billion and $14.6 billion in assets in the first half. Corrections in valuations probably led the S&P 500 to garner investors’ attention in the year.

Value & Dividend Winning Corners

A hawkish Fed increased benchmark U.S. treasury bond yields in the year to as high as more than 3%. This has brought back investors’ favor to the value corner of investing as value stocks fare better in a rising rate environment. Dividends too outperformed as this offers a safe exposure.

Vanguard Value ETF (VTV - Free Report) has amassed about $12.4 billion in assets, whileSchwab U.S. Dividend Equity ETF (SCHD - Free Report) has attracted about $7 billion in assets. The fund SCHD holds stocks that have a record of consistently paying dividends. Moreover, the fund yields 3.33% annually.

U.S. Short-Term Treasuries Back in Fashion

iShares Short Treasury Bond ETF (SHV) and SPDR Bloomberg 1-3 Month T-Bill ETF (BIL - Free Report) added about $8.51 billion and $7.44 billion in assets, respectively. We believe cash and short-dated fixed income play a greater role in adding stability to a portfolio. This is especially true given that the Fed will keep on hiking rates this year and short-term bond yields will rise alongside.

Muni Bond ETFs Win

iShares National Muni Bond ETF (MUB - Free Report) amassed about $5.64 billion in assets in the month. The underlying ICE AMT-Free US National Municipal Index of the fund measures the performance of the investment-grade segment of the U.S. municipal bond market & there were 8,274 issues in the index. The index includes municipal bonds from issuers that are primarily state or local governments or agencies such that the interest on the bond is exempt from U.S. federal income taxes. Vanguard Total Bond Market ETF (BND - Free Report) too garnered about $6.32 billion in assets.

High-Yield Corporate Bonds Out of Favor

As safer treasury bonds are yielding better, high-yield or junk corporate bond ETFs fell out of favor. iShares iBoxx USD High Yield Corporate Bond ETF (HYG) and SPDR Bloomberg High Yield Bond ETF (JNK - Free Report) lost about $5.7 billion and $2.7 billion in assets. In fact, iShares iBoxx USD Investment Grade Corporate Bond ETF (LQD) also shed about $2.45 billion in assets.

Financials Too Lost Assets

Financial Select Sector SPDR Fund (XLF - Free Report) too lost about $6.9 billion in assets. As the yield curve has inverted several times this year and the curve flattened too many times, financial stocks and ETFs underperformed. These stocks fare better in a steepening yield curve scenario.