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ETF Asset Report of Second-Quarter 2019

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The markets were mostly upbeat in the second quarter of 2019, thanks to a dovish Fed. However, global stocks skidded in May due to renewed trade tensions and the emergence of recessionary fears, only to go on to record the best performance in June in a decade. Inflows to U.S.-listed ETFs were outstanding in June as well (read: Top ETF Events of Wall-Street's Decade-Best June).

Let’s see how investors reacted to this situation and parked their money in the second quarter. The data is from etf.com (as of Jun 30, 2019).

Treasuries Rule

iShares Short Treasury Bond ETF SHV was the top-most asset gainer, amassing about $5.1 billion in assets. As flight-to-safety plays dominated global markets in May and the Fed remained dovish, the benchmark 10-year U.S. Treasury note yield fell to 2% at June-end. Some key parts of the yield curve are inverted and the 10-year treasuries bond yield fell below that of one-year. Naturally, investors rushed to short-term bond ETFs for higher yields and lesser interest rate risks.

Investors poured money into iShares 20+ Year Treasury Bond ETF TLT ($3.80 billion), iShares 7-10 Year Treasury Bond ETF IEF (about $3.62 billion), iShares Core U.S. Aggregate Bond ETF AGG ($3.45 billion) and iShares U.S. Treasury Bond ETF GOVT ($2.81 billion in assets) (read: 10-Year Yield Below One-Year: Play Leveraged Bond ETFs).

Developed Market Stocks Win Too

A dovish Fed means more months of cheap money inflow and an equity rally. iShares Russell 1000 Value ETF IWD,iShares Core MSCI EAFE ETF IEFA, iShares Russell 1000 Growth ETF IWF and Vanguard S&P 500 ETF VOO attracted about $4.70 billion, $4.61 billion, $4.05 billion and $3.94 billion, respectively, in the quarter.

Low Volatility Prevails

Though the U.S. market was in great shape in June, this did not take the spotlight away from low-volatility products. These apparently safe products, which normally do not surge in a bull market but offer protection in troubled times, were much in demand in the second quarter. Geopolitical tensions in the Middle East, tariff worries, overvaluation worries — all have contributed to investors’ interest in low-volatility products. iShares Edge MSCI Min Vol U.S.A. ETF USMV has attracted about $2.35 billion in assets in the second quarter (read: 3 Low-Volatility Stocks & ETFs to Buy).

Emerging Markets Lose

Both equities and bond ETFs — iShares MSCI Emerging Markets ETF EEM and iShares JP Morgan USD Emerging Markets Bond ETF EMB — lost about $2.28 billion and $1.91 billion in assets, respectively, in the quarter, probably due to US-China trade tensions.

Sheen for Small-Caps Fade

Small-caps are under pressure. Despite renewed tariff tensions in the second quarter, the benchmark Russell 2000 index of small companies underperformed the S&P 500, the Dow Jones and the Nasdaq. Margin pressure is weighing on the small-cap segment. Barclay’s now estimates that small-caps will post EBITDA growth of 2% this year, down from its estimated 5.5% growth earlier this year. About $1.73 billion in assets bled from iShares Russell 2000 ETF (IWM - Free Report) (read: Small-Cap Q1 Earnings Dull: 5 Better-Performing Sector ETFs).

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