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Weekly ETF Roundup: International & Bond Win, US Equity Lags

Sweta Killa
UnitedHealth Group (UNH) closed the most recent trading day at $266.70, moving +0.11% from the previous trading session.

Although the U.S. stock market ended the week on a positive note, concerns over speedy rates hike unnerved investors. This is especially true as a stronger economy, signs of a pickup in inflation and Fed minutes could compel the Fed to raise interest rates more times than three-liftoffs penciled for this year.

Against such a backdrop, ETFs overall gathered about $4.9 billion capital last week, with international equity ETFs leading the way higher with $4.5 billion inflows, closely followed by $2 billion in U.S. fixed income ETFs. However, U.S. equity ETFs shed more than $2.4 billion, per etf.com.

International ETFs Outperform

The ongoing chaos in the U.S. market coupled with strong fundamentals has made international investing tempting. The major catalysts include pick-up in economic activities especially in Eurozone and China, booming trade, strong corporate earnings and a rise in commodity prices. As such, iShares Core MSCI Emerging Markets ETF (IEMG) topped the list of inflows last week, gathering $1.3 billion in its asset base. This fund offers exposure to a broad basket of 1,917 emerging market stocks with an expense ratio of 0.14%. It has a Zacks ETF Rank #3 (Hold) and gained 0.04% last week (read: Will EM & Asia Outperform U.S. ETFs in the Year of Dog?).

Vanguard FTSE Developed Markets ETF VEA and iShares Core MSCI EAFE ETF IEFA accumulated $475 million and $374 million, respectively, in its asset base. Both funds target the developed market with a well-diversified portfolio. VEA charges a lower fee of 0.07% while IEFA costs one bps more. Both funds have a Zacks ETF Rank #3 and were up a modest around 0.05%.

Bond ETFs Rock

Despite the rise in yields, bond ETFs did not lose their appeal due to their bargain price. This is because the 10-year Treasury yields peaked to around 2.95% in mid-week, much lower than the 3% threshold which investors were fretting about, before falling to as low as 2.86% later in the week. The SPDR Bloomberg Barclays High Yield Bond ETF JNK was the biggest beneficiary of this trend, with inflows of nearly $488 million. It seeks to offer a diversified exposure to U.S. dollar-denominated high yield corporate bonds with above-average liquidity. The fund lost 0.2% last week and has a Zacks ETF Rank #4 (Sell) (read: What Investors Are Dumping Junk Bond ETFs).

U.S. Equity ETFs Lost Luster

While Vanguard S&P 500 VOO tracking the S&P 500 index was the second asset gainer, having accumulated $504 million last week, most of the ultra-popular equity ETFs lost luster. SPDR S&P 500 SPY was the most-hated ETF with massive outflows of $1.3 billion, followed by $938 million for SPDR Dow Jones Industrial Average ETF DIA and $743 million for iShares Russell 2000 ETF IWM. SPY also tracks the S&P 500 while DIA targets the blue-chip companies in the Dow Jones Industrial Average. The former gained 0.6% and has a Zacks ETF Rank #3 while the latter having a Zacks ETF Rank #2 (Buy) delivered 0.4% returns.

Meanwhile, IWM tracks the small-cap Russell 2000 Index and gained 0.4%. It also has a Zacks ETF Rank #3. The SPDR S&P MIDCAP 400 ETF MDY, which targets the mid-cap segment of the broad U.S. equity market, pulled out more than $224 million from its asset base. It added 0.2% last week and has a Zacks ETF Rank #3.

Further, five sector State Street funds, namely Energy Select Sector SPDR Fund XLE, Health Care Select Sector SPDR Fund XLV, Industrial Select Sector SPDR Fund XLI, Technology Select Sector SPDR Fund XLK and Financial Select Sector SPDR Fund XLF, are among the top 10 asset losers. These products saw outflows in the range of $300-$500 million. XLK and XLF have a Zacks ETF Rank #2 while the rest carry a Zacks ETF Rank #3 (read: These Tech ETFs Dispel Rate Hike Fears, Hit 52-Week High).

Gold and Short Treasury ETF Gained Traction  

While rising yields diminished the attractiveness of the yellow metal since it does not pay interest like fixed-income assets, a drive to hedge against inflation pushed investors to gold. As a result, the ultra-popular product, SPDR Gold Trust ETF GLD, tracking the bullion accumulated around $282 million. It shed 1.4% last week and has a Zacks ETF Rank #3 (read: 5 ETF Ways to Trade Surging Inflation).

On the other hand, higher rates have pushed investors’ interest to short-duration bond ETFs like iShares Short Treasury Bond ETF SHV, which acts as a hedge to rising rates. The fund is actively managed and seeks to manage interest rate risk while maximizing current income through diversified exposure to short-term bonds. It has gathered $282 million in its asset base and delivered flat returns over the past five days. The fund has a Zacks ETF Rank #3 (read: 6 Ways to Build a Rate-Proof Portfolio With ETFs).

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