True to its ill repute, September was an immensely volatile month. Early in the month, both equities and bonds went into a tailspin on a sooner-than-expected rate hike prospect. However, while the start was rocky, the end was smoother with a still-dovish Fed, an accommodative Bank of Japan and a surprise pre-accord on an oil output curb in November. All these events influenced investors as well as asset flows in the ETF world in the month (read: Hedge Your Portfolio Against Sell-Off With These ETFs).
Let’s take a look at where investors poured their money in September and where they took it out from (as per asset flow report till September 27, 2016).
Real Estate Tops the Chart
Among the key events of September, one of the most notable was the real estate investment trusts or REITs, which were long part of the broader financial sector, getting a free status. Effective September 1, the S&P Dow Jones Indices and MSCI Inc., formed the new Real Estate Sector under the Global Industry Classification Standard (GICS) (read: What ETF Investors Need to Know About the New Real Estate Sector).
This separation made the real estate sector even more attractive to investors and lessened trading volatility. The analysts expected “as much as $19 billion in new demand” and confirming analysts’ optimism, Real Estate Select Sector SPDR Fund (XLRE - ETF report) attracted about $3.21 billion in assets in September. A dovish Fed and lower long-term bond yields also played their role in drawing investors as real estate is a high-yielding sector.
Value ETFs Prevail
Uncertainties relating to the Fed decision, the outcome of the OPEC meeting during September 26–28 and the International Energy Agency’s (IEA) latest forecast that a global oil supply glut will remain through 2017, kept market sentiments rocky throughout September. As a result, iShares Russell 1000 Value ETF (IWD - ETF report) hoarded about $1.33 billion of assets in the month (read: 4 Low P/E Value ETFs & Stocks to Wait Out Uncertainty).
Gold Mining Gains
Since volatility levels flared up in September and the Fed hike bets backtracked as soon as some downbeat economic data points started flowing in, gold regained its luster. VanEck Vectors Gold Miners ETF (GDX) hauled in about $1.14 billion in assets in the month.
Currency Hedging Flops
Deutsche X-trackers MSCI EAFE Hedged Equity ETF (DBEF - ETF report) shed about $1.79 billion in assets as currencies like yen and euro showed strength against the greenback in September (read: Can Japan ETFs Soar Without Helicopter Money?).
This curbed demand for the currency-hedged international equities ETF. Another currency-hedged ETF iShares Currency Hedged MSCI EAFE ETF (HEFA - ETF report) saw about $476.9 million in assets gushing out.
Financial ETFs Ended Up Losing
Both Financial Select Sector SPDR Fund (XLF) and Vanguard Financials Index Fund (VFH - ETF report) saw about $1.10 billion and $890 million of assets gushing out respectively. An accommodative Fed and low levels of bond yields did not bode well for financial stocks as these perform better in a rising rate environment. Also, legal troubles faced by Wells Fargo & Company (WFC - Analyst Report) weighed on these ETFs’ asset flows (read: Financial ETFs Surged in August: Will the Rally Last?).
Europe ETFs Out of Favor
With Eurozone economic growth slowing in Q2 from the prior period, investors did not seem too optimistic about iShares MSCI Eurozone ETF (EZU - ETF report) and Vanguard FTSE Europe ETF (VGK - ETF report) . EZU and VGK leaked about $766.2 million and $647.8 million in assets respectively in September. Also, concerns over the health of the biggest bank of Germany – Deutsche Bank – kept investors away from Europe investing (read: European Financial ETF in Focus on Deutsche Bank Woes).
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