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Rebounding Economy Sends Cash Into ETFs


Last Friday, the Labor Department said U.S. employers added 288,000 jobs in April, the largest monthly gain in over two years, while the unemployment rate fell to 6.3%. Inflows to exchange traded funds indicate the jobs number is the just the latest data point investors view as a sign the U.S. economy is strengthening.

Although ETF inflows have been sluggish to start the year, that lethargy abated in April with inflows totaling $15.1 billion as of April 29, more than half the 2014 total. [ETF Inflows Solid in April]

There is evidence to support the notion investors are preferring equity ETFs over bond funds. “Flows into U.S. equity ETFs are outpacing fixed income. U.S. bond ETFs have absorbed $4.5 billion since April, less than the $5.3 billion sent to equity funds, Bloomberg reported.

Still, nine of the 10 worst ETFs in terms of 2014 outflows are equity-based funds, including the SPDR S&P 500 ETF (SPY) , PowerShares QQQ (QQQ) and the Vanguard FTSE Emerging Markets ETF (VWO) .

At the sector level, energy and health care ETFs have bee impressive asset gatherers as have ETFs holding real estate investment trusts, which have benefited from declining Treasury yields. “Energy, health-care and real estate ETFs have absorbed the most money among industry funds this year, taking in more than $3.5 billion each,” according to Bloomberg.

Amid the rotation to value stocks away from momentum fare, the Energy Select Sector (XLE) has been the best asset gatherer among sector ETFs, hauling in $2.2 billion while the iShares U.S. Energy ETF (IYE) has brought in $666.1 million. [Energy ETFs Lead Sector Inflows]

A 13.2% decline in 10-year Treasury yields has sparked combined inflows of the about $2.8 billion to the Vanguard REIT ETF (VNQ) , iShares U.S. Real Estate ETF (IYR) and the Schwab US REIT ETF (SCHH) . [Economic Data Lifts REIT ETFs]

Among bond ETFs, only the iShares 7-10 Year Treasury Bond ETF (IEF) ranks among the top-10 ETFs overall for 2014 inflows. Since the start of April, however, investors have shown a taste for international bonds. As just two examples, the SPDR Barclays International Treasury Bond ETF (BWX) and the PowerShares Emerging Markets Sovereign Debt Portfolio (PCY) have seen inflows of $185.8 million and $101 million, respectively, since April 1.

iShares U.S. Real Estate ETF


Tom Lydon’s clients own shares of QQQ and SPY.