A look at the biggest ETF creations year-to-date show that U.S. investors continue to buy into two main story lines: The first is the upside potential in the eurozone; the second is the relative strength of the U.S. economy.
Out of the $201 billion that has flowed into U.S.-listed ETFs so far this year, nearly $28 billion has landed into two ETFs: the WisdomTree Europe Hedged Equity ETF (HEDJ | B-49) and the Deutsche X-trackers MSCI EAFE Hedged Equity ETF (DBEF | B-72).
These funds offer exposure to eurozone equities while peeling away the exposure to the currency crosses. Their popularity has grown as investors find value in Europe, but want to protect their return stream from the negative impact of a strong dollar.
HEDJ has attracted $15.44 billion in assets so far in 2015, and DBEF has seen inflows of $12.43 billion. The creations have come despite the funds’ difficult performance in late summer of this year.
It’s unclear whether the demand for these two strategies will go unscathed through the end of the year now that the European Central Bank didn’t deliver as aggressive a monetary easing as the market had expected. The ECB cut its deposit rate 10 basis points to -0.3% this month, extended its QE program by six months to March 2017, and agreed to buy local and regional debt.
As ETF.com’s ETF analyst Sumit Roy put it, “The fate of ETFs like HEDJ will depend not on today's ECB action per se, but on whether the overall stimulus measures from the central bank turn out to be successful in boosting the eurozone economy.”
US Equity ETFs In Demand
Also among the top five creations this year are two U.S. equity funds, the Vanguard S&P 500 (VOO | A-98) and the Vanguard Total Stock Market (VTI | A-100). The funds attracted a net of $11.23 billion and $6.61 billion year-to-date, respectively.
This year has not been particularly kind to U.S. stocks. The S&P 500 delivered muted gains in 2015, but relative to much of the world, many see the U.S. economy as the strongest one, with the jobs market recovering, and the first round of interest-rate hikes imminent.
After a dramatic market correction late summer, both funds have managed to resume an uptrend, and investors have been buying into it.
Broad Fixed-Income Choice
Finally, rounding out the top five most popular ETFs this year is a veteran in the fixed-income space. The iShares Core U.S. Aggregate Bond (AGG | A-98) has raked in more than $7.04 billion in fresh net assets year-to-date. The fund is cheap, massively liquid, and offers investors a one-stop-shop-type of exposure to the U.S. investment-grade bond market.
More than a third of the fund is tied to U.S. Treasurys. Year-to-date, the fund has delivered 0.5% in returns.
Charts courtesy of StockCharts.com
Contact Cinthia Murphy at email@example.com