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Wall Street witnessed a massacre in Q2 due to mounting inflationary pressures, rising rate worries and geopolitical tensions in Russia and Ukraine. The S&P 500, the Dow Jones, the Nasdaq Composite and the Russell 2000, declined 17.5%, 12.3%, 23.5% and 18.5%, respectively. FAANG stocks were specifically beaten-down in early phase of Q2.
As far as rates are concerned, the benchmark treasury yield started the quarter with 2.39%, hit a high of 3.49% and was at 3.20% at the end of Jun 28, 2022. Against this backdrop, below we highlight a few ETFs that fetched sizable assets in the second quarter of 2022.
U.S. Short-Term Treasuries Back in Fashion
SPDR Bloomberg 1-3 Month T-Bill ETF (BIL), iShares Short Treasury Bond ETF (SHV) and iShares 1-3 Year Treasury Bond ETF (SHY) added about $7.33 billion, $4.39 billion and $3.74 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.
High-Dividend Products in High Demand
iShares Core High Dividend ETF HDV (yields about 3% annually) fetched in about $4.50 billion in Q2. High dividend is a great attraction for investors in the current edgy market.
Muni Bond ETFs Win
iShares National Muni Bond ETF MUB amassed about $5.57 billion in assets in Q2. 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.
Floating-Rate Bond ETFs Gain Assets
WisdomTree Floating Rate Treasury Fund (USFR) attracted about $3.75 billion in Q2. Floating rate bonds are investment grade and do not pay a fixed rate to investors but have variable coupon rates that are often tied to an underlying index (such as LIBOR) plus a variable spread depending on the credit risk of the issuers.
Since the coupons of these bonds are adjusted periodically, these are less sensitive to an increase in rates compared to the traditional bonds. Unlike fixed coupon bonds, these do not lose value when the rates go up, making the bonds ideal for protecting investors against capital erosion in a rising rate environment.
Value ETFs Gaining Precedence
Vanguard Value ETF (VTV) amassed about $3.1 billion in assets. As value stocks fare better in a rising rate environment than growth stocks, VTV gained considerable assets in the quarter.
Financials Out of Fashion
Financial Select Sector SPDR Fund (XLF) lost about $9.6 billion in assets as yield curve flattened/ inverted many times in the quarter. While the Fed continued to hike rates (enacted two rate hikes in the quarter) resulting in a spike in the short-term rates, recessionary fears suppressed the long-term bond yields in the quarter. This is a negative scenario for the financial stocks and ETFs.
Gold Lost Luster
SPDR Gold Trust GLD too has seen assets worth of $2.0 billion gushing out of the fund. Since the greenback continued to gain this year, gold (which is priced in the greenback) lost its value.
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SPDR Gold Shares (GLD): ETF Research Reports
iShares National Muni Bond ETF (MUB): ETF Research Reports
iShares Core High Dividend ETF (HDV): ETF Research Reports
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