Q1 ETF Asset Report: Safe Havens Pop; Currency Hedged Drop

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Includes: AGG, DXJ, FBT, FDN, GDX, GLD, HEDJ, IEF, IWF, JNK, LQD, QQQ, SPY, TLT
by: Zacks Funds

The first quarter of 2016 was all about heightened global growth concerns, oscillating oil prices and ambiguity over the interest rate policy of the Federal Reserve. In particular, the acute plunge in oil prices took a toll on a number of assets worldwide. Most economies across the world, be it China, Japan, the Euro zone or the otherwise improving U.S. economy, were harried by fears of a slowdown.

Most of the central Bank meetings turned out dovish and oil producers tried to strike an output freeze deal. All these efforts helped the broader market to recover in March and end the quarter on the positive note. Let's see how a ghastly start and an upbeat ending to Q1 impacted asset growth in the ETF industry (as of March 29, 2016) (per etf.com):

It Was All-About Gold

A flight to safety following a spike in volatility brightened the demand for the safe-haven asset gold (despite deteriorating fundamentals). Investors should note that a round of downbeat U.S. economic data in the early part of Q1 and the possibility of a slower-than-expected rate hike trail undermined the greenback in the first quarter, pushing most commodities ETFs (including gold) higher.

Not only bullion, gold mining stocks also received considerable investor attention in the quarter. As a result, the fund tracking the gold mining equities, the Market Vectors Gold Miners ETF (NYSEARCA:GDX), emerged as the winner in asset accumulation in Q1. GDX scooped up about $6.30 billion in assets while the yellow metal SPDR Gold Trust ETF (NYSEARCA:GLD) pulled in $5.15 billion in assets in Q1 (read: Gold Mining ETF Investing 101).

U.S. Treasury bonds: Another Safe Refuge

Needless to say, U.S. treasury bonds were the other winners as these offer safety. Global growth issues dragged down yields on 10-year Treasury notes by 43 bps to 1.81% (as of March 29, 2016) in the quarter, leading Treasury valuation to soar. Thanks to this trend, the iShares 20+ Year Treasury Bond ETF (NYSEARCA:TLT) and the iShares 7-10 Year Treasury Bond ETF (NYSEARCA:IEF) amassed about $2.55 billion and $1.86 billion in the quarter (read: 5 ETFs for Portfolio Safety, Stability and Diversification).

Junk Bond ETFs Garner Attention

The drive for high income and occasional improvement in the oil patch brought junk bond ETFs back into business in Q1. Plus, reasonable valuation after two soft years fetched substantial investors' money in the quarter.

Investors poured more than $2 billion and $1.7 billion respectively in the SPDR Barclays Capital High Yield Bond ETF (NYSEARCA:JNK) and the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEARCA:LQD). Apart from these, the iShares Core Total U.S. Bond Market ETF (NYSEARCA:AGG) gathered over $3.4 billion in assets in Q1, being the third seed in the asset-gatherer list.

Japan Currency Hedged-Equities ETFs: Justified Loser

Currency-hedging technique failed in the quarter due to a falling U.S. dollar. This was truer for the Japan equities, as yen added more strength by virtue of its safe haven nature. Plus, Japan is an export-driven economy, being more susceptible to this adverse currency translation.

This sort of movement in currencies must haven dented currency-hedged Japanese equities ETFs like the WisdomTree Japan Hedged Equity ETF (NYSEARCA:DXJ) which has seen assets worth $2.57 billion flowing out. The problem was the same with the WisdomTree Europe Hedged Equity ETF (NYSEARCA:HEDJ). The fund lost $2.11 billion in assets in Q1.

U.S. Equities Tumble

In tune with the other risky assets, investors fled the U.S. equities' space. The trend was more pronounced for growth equities ETFs. Tech laden Nasdaq-based PowerShares QQQ Trust ETF (NASDAQ:QQQ) lost about $2.04 billion in the quarter, taking the third position in the asset losers' list.

The ETF was followed by the iShares Russell 1000 Growth ETF (NYSEARCA:IWF) which redeemed about $1.96 billion in assets. Other growth sector ETFs like the First Trust NYSE Arca Biotechnology Index ETF (NYSEARCA:FBT) and the First Trust DJ Internet Index ETF (NYSEARCA:FDN) saw outflows of $1.76 billion and $1.32 billion in assets, respectively.

Finally, the ultra-popular SPDR S&P 500 Trust ETF (NYSEARCA:SPY) also entered the losers' list. The fund lost around $1.23 billion in assets in the quarter.

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