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U.S. Equity Tops Last Week's Asset Flow

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The U.S. stock market ended the week in the red as worries over a global trade war and the turmoil surrounding the Trump administration kept investors jittery. All the three major indices dropped at least 1% last week. However, market sentiments have improved since the indices tumbled into correction territory in early February. As such, the lure for U.S. equity ETFs returned with the record amount of inflows last week (read: Best Performing ETFs of 9-Year Bull Run).

According to Bank of America Merrill Lynch, investors poured the most money — $36.3 billion — into U.S. equity funds since 2002. Overall, stock-focused funds took in $43.3 billion in fresh cash over the past week, a new peak that reverses much of the angst over the past several weeks.

Per etf.com, overall ETFs gathered about $44.69 billion capital last week with U.S. equity ETFs leading the way higher with $39.32 billion inflows, closely followed by $3.79 billion in international equity ETFs and $1 billion in U.S. fixed income ETFs. With this incredible influx of money, year-to-date ETF asset flow is again standing near record levels of $97.4 seen at this time last year.

Given this, we have highlighted four zones from the U.S. equity world that garnered solid inflows last week.

Large-Cap ETFs

The ultra-popular large-cap equity ETFs, SPDR S&P 500 SPY and PowerShares QQQ QQQ, were the biggest asset gainers last week, accumulating $10.77 billion and $2.71 billion, respectively. SPY tacks the S&P 500 index while QQQ tracks the Nasdaq-100 index. The former has a Zacks ETF Rank #3 (Hold) while the latter has a Zacks ETF Rank #2 (Buy).

Strong asset accumulation was driven by solid fundamentals thanks to solid corporate earnings, the new tax law, and strengthening global fundamentals. For full-year 2017, total earnings for the S&P 500 index are on track to be up 7.1% on 5.9% higher revenues, which would follow 0.7% earnings growth on 2.2% higher revenues in 2016. Index earnings are expected to be up 20.7% in 2018 and 9.8% in 2019. The massive tax cut will perk up the economy and save billions for corporations, leading to reflation trade and an earnings boost. Additionally, rounds of upbeat data and a weak dollar have raised the appeal for the large-cap funds lately (read: 3 ETF Areas Up At Least 15% This Year).

Dividend ETFs

The latest February jobs report has rekindled interest in dividend ETFs like iShares Select Dividend ETF DVY, Schwab U.S. Dividend Equity ETF SCHD and Vanguard Dividend Appreciation ETF VIG. These funds pulled in about $3.55 billion, $2.33 billion and $1.9 billion, respectively, in capital. Investors should note that the trio focuses on stocks having a history of dividend growth year over year. VIG has a Zacks ETF Rank #2 while the other two have a Zacks ETF Rank #3 (read: 4 Safe Dividend Growth ETFs & Stocks for a Faltering Market).

The report reflects the highest number of job additions by the economy in February since July 2016, with a slowdown in wage growth, easing fears of rising inflation and less chances of faster-than-expected rate hikes. The Fed is now expected to move toward gradual normalization of the monetary policy, providing potential upside for the dividend products, which were otherwise battered by the recent aggressive stance adopted by the Fed.

Additionally, heightened uncertainty and volatility drove investors to safe and stable avenues. Dividend-focused products offer safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices. Dividend-paying securities are major sources of consistent income for investors, creating wealth when returns from the equity market are at risk.

Small-Cap ETFs

Trump’s tariff plan on steel and aluminum imports as well as potential China imports made investors flee to true domestic exposure. Small-cap stocks are closely tied to the U.S. economy and do not have much exposure to the international market. As such, these are considered safe and better plays, if any political issue creeps into the picture, and could better insulate investors against Trump’s trade-protectionism policy (read: Focus on Small-Cap ETFs Amid Trade War Fears).

The two ultra-popular ETFs -- iShares Russell 2000 ETF IWM and iShares Core S&P Small Cap ETF IJR -- are among the top 10 asset gainers with inflows of $1.64 billion and $1 billion, respectively. IWM tracks the small-cap Russell 2000 Index while IJR measures the performance of the S&P SmallCap 600 Index. Both funds have a Zacks ETF Rank #3.

Sector ETFs

With regard to sectors, technology was on the hot list thanks to an astounding surge in FAANG stocks and other high-performance technology names while real estate, energy and utilities turned out of investors’ favor. The emergence of cutting-edge technology such as big data, Internet of Things, autonomous cars, gaming, wearables, VR headsets, drones, virtual reality devices, artificial intelligence, cryptocurrencies, and other advanced information technologies as well as strong corporate earnings are acting as the key catalysts (read: 5 Tech Stocks Lifting the Nasdaq ETF to New High).

Further, the twin tailwinds of Trump’s tax reform plan and a rising interest rate scenario are also making investors throng the sector. As such, Technology Select Sector SPDR Fund XLK gathered about $1.16 billion in its asset base last week. The ETF offers broad exposure to the technology sector and follows the Technology Select Sector Index. It has a Zacks ETF Rank #2.

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