The month of January was all about Trump's inauguration, Dow's ascent to the 20,000 mark, reassuring earnings, announcements of a round of policies from the White House and the resultant spike in volatility, and last but not the least, overvaluation fears after a stupendous Trump rally at the end of 2016. Overall, markets remained moderate.
The circumstance left investors pondering where to invest their money and realize gains. Let's see how the start to 2017 impacted asset growth in the ETF industry in the first month of the year (as of January 27, 2017) (per etf.com):
U.S. Equities in Favor
Thanks to upbeat earnings, the S&P 500 hauled in maximum assets. Corporate earnings growth for Q4 of 2016 is on the way to be the highest in eight quarters. As per the Earnings Trends issued on January 26, 2017, Finance (earnings growth of +11.4% on +3.2% revenues), Aerospace (earnings growth of +15.1% on +2.1%), Construction (+13.8% earnings growth on +13.4% revenue growth), Basic Materials (+28.8% earnings growth on +6.4% revenue growth) and Medical (+18.2% earnings growth on +6.6% revenue growth) are likely to post stellar growth this reporting cycle.
This trend benefited the S&P 500-based Vanguard S&P 500 Index Fund (NYSEARCA:VOO), which attracted about $1.8 billion in assets in the month. Since Dow Jones Industrial Average hit the 20,000 mark for the first time in history on a revitalized Trump bump, SPDR Dow Jones Industrial Average ETF Trust (NYSEARCA:DIA) grabbed about $1.59 million in assets.
Trump's pledges to boost American jobs also pushed investors toward small-cap ETFs like iShares Core S&P Small Cap ETF (NYSEARCA:IJR). This is because small-cap stocks better reflect domestic market activity. The fund added about $1.77 billion in the month. iShares Core S&P MidCap ETF (NYSEARCA:IJH) too saw a surge in assets worth $1.25 billion.
EAFE Gains Too
As the fundamentals are shoring up for the developed markets, investors injected about $1.75 billion in assets in iShares Core MSCI EAFE ETF (BATS:IEFA).
Emerging Markets a Winner
Since the greenback remained subdued in January despite the Fed rate hike in December, emerging market investing brightened. Apart from this, the fundamentals are pretty pro-growth in emerging markets at the current level unlike in 2013 (famous for taper tantrum). iShares Core MSCI Emerging Markets ETF (NYSEARCA:IEMG) and Vanguard FTSE Emerging Markets ETF (NYSEARCA:VWO) hauled in about $1.74 billion and $1.18 billion in assets, respectively.
Growth Equities Out of Favor
After an outstanding rally in January, investors probably became skittish. Plus, uncertainties regarding Trump's policies also made the market a bit wary, causing growth equity ETFs to lose assets.
iShares Russell 1000 Growth ETF (NYSEARCA:IWF), PowerShares QQQ Trust (NASDAQ:QQQ) and Vanguard Growth Index Fund (NYSEARCA:VUG) saw decline of about $1.49 billion, $1.45 billion and $754 million, respectively, in assets.
SPY and IWM Shed Assets: Are Expense Ratios Spoilers?
Though VOO was the topper in the list, the other S&P 500-based fund (NYSEARCA:SPY) lost assets worth $2.34 billion, probably due to the fact that the former charges a lower expense ratio. VOO charges 5 bps in a year while SPY charges 9 bps.
The same was the story for small-cap ETF (NYSEARCA:IWM), which charges 20 bps in fees and saw $1.49 billion of assets gushing out while its counterpart IJR, charging 7 bps actually gained assets.
Gold Turns Dull
Probably assuming a prolonged uptrend in equities and fearing a sharp rise in treasury yields, investors pulled out their money from gold ETFs too. SPDR Gold Trust (NYSEARCA:GLD) lost about $866 million in assets in the month.
Utilities in Downbeat Zone
The situation was similar for utilities. Utilities Select Sector SPDR Fund (NYSEARCA:XLU) too saw about $720.8 million assets leaving the fund, as investors feared a rising rate scenario and abandoned this rate-sensitive fund.