U.S. Equity ETFs Attracting Healthy Inflows

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Includes: GLD, IWM, JNK, LQD, QQQ, SHY, SPY, XLP, XLU
by: Zacks Funds

A favorable domestic economic scenario and the recent rally in the key U.S. benchmarks led the domestic equity ETFs to attract a lump sum volume of asset inflows after suffering heavily in the first half of the year. While several recently released economic data showed that the U.S. economy is rebounding strongly, the Dow and the S&P 500 hit multiple all-time highs in the past few sessions. In this scenario, it will be interesting to find out the ETFs that are attracting maximum investor attention.

Massive Inflow into U.S. Equity ETFs

According to ETF.com, ETFs that are listed in the U.S. witnessed a total inflow of $20 billion in the week ending July 14, of which U.S. equity ETFs account for $13.7 billion of assets alone. Separately, international equity ETFs, U.S. fixed-income ETFs and international fixed-income ETFs registered inflows of $1 billion, $3.9 billion and $670 million, respectively. This indicated a strong rebound in investor confidence in the U.S. equity markets.

Out of the top five performers in terms of inflows, three are equity ETFs. The largest ETF of the world, the SPDR S&P 500 ETF (NYSEARCA:SPY) registered an inflow of $7.2 billion during the week, the highest among all ETFs. The popular small-cap ETF the iShares Russell 2000 ETF (NYSEARCA:IWM) occupied the second position in the top performers' list by attracting $1.5 billion. Another large-cap ETF, the PowerShares QQQ Trust ETF (NASDAQ:QQQ), which invests more than half of its assets in the technology sector, attracted $897 million during the week. It was the fifth member in the top performers' list.

Apart from these equity ETFs, corporate bond ETFs also attracted a healthy volume of inflows for the week ending July 14. The other two ETFs among the top five performers are the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEARCA:LQD) and the SPDR Barclays High Yield Bond ETF (NYSEARCA:JNK). These ETFs saw inflows of $1.4 billion and $966.2 million, respectively, during the week.

Improving U.S. Economy Boosting Inflows

Encouraging economic data that released recently indicate that the U.S. economy is on track for improvement. In June, U.S. industrial output expanded at the fastest monthly rate in 11 months. Industrial output that comprises almost everything including manufacturing, mining, and electric and gas utilities increased 0.6% following an upwardly revised 0.3% decline in May. Also, retail sales grew 0.6% sequentially and registered an improvement for the third consecutive month. The gain followed the previous month's downwardly revised 0.2% rise.

Moreover, the economy saw healthy volume of 287,000 job additions in June, according to the U.S. Department of Labor. Moreover, the rejoining of 400,000 Americans led the unemployment rate to rise to 4.9% from 4.7% in May. Also, other economic data including the Institute for Supply Management (ISM) manufacturing and services indexes, consumer spending and Producers Price Index were encouraging.

Withdrawals from Safe-Haven Assets

Meanwhile, the report showed that investors are also pulling out their funds from safe haven ETFs to reinvest them in comparatively riskier propositions. Commodity and currency ETFs are the only categories that saw outflows of $215.6 million and $55.1 million, respectively, for the week ending July 14. Moreover, rising yield on the U.S. 10-year Treasury bond and decline in gold prices are also indicating that demand for safe haven assets has declined.

The largest gold ETF in the world, the SPDR Gold Trust ETF (NYSEARCA:GLD), which consistently attracted healthy inflows since the start of this year, saw an outflow of $672 million in the week ending July 14. Other popular safe haven ETFs including the Utilities Select Sector SPDR ETF (NYSEARCA:XLU), the iShares 1-3 Year Treasury Bond ETF (NYSEARCA:SHY) and the Consumer Staples Select Sector SPDR ETF (NYSEARCA:XLP) witnessed significant outflows of $383.3 million, $297.9 million and $548 million, respectively, during the week.

Bottom Line

The ongoing rally in financial markets and an improving U.S. economy are likely to continue boosting U.S. equity ETFs further, placing them favorably for more benefits ahead unless some unprecedented event shakes the investing scenario.

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