The first half of 2017 witnessed several key events. From Donald Trump taking chair as the U.S. president, to the Fed's policy tightening, to developments in the oil patch or happenings across the U.S. border - each incident left a profound impact on the global investing world and asset classes. Below we will discuss how the ETF universe responded to these events, so that investors have a fair idea of how the funds might behave going into the second half.
U.S. Large-Cap Growth Stocks Leading the Market
If small-caps were the stars in late 2016, large-caps ruled the first half of this year. Major U.S. indices hit highs in 1H. On January 26, 2016, the Dow (NYSEARCA:DIA) hit the 20,000 mark for the first time in history, buoyed by the Trump rally.
Expectations of materialization of a corporate tax reform and fiscal reflation in the Trump administration paved the way for growth stocks. Moreover, the PowerShares DB USD Bull ETF (NYSEARCA:UUP) was down 4.7%. Since large-cap stocks have greater exposure to foreign economies and, therefore, more susceptibility to negative currency translations, moderation in the U.S. dollar should bode well for the segment.
The SPDR S&P 500 Growth ETF (NYSEARCA:SPYG) (up 14.4%) has thus surpassed the SPDR S&P 500 ETF (NYSEARCA:SPY) (up 9.6%) and the SPDR S&P 500 Value ETF (NYSEARCA:SPYV) (up 4.3%) so far this year (as of June 22, 2017).
The Trump rally lost some steam in Q2 as political uncertainty surmounted. With controversies over the leakage of "highly classified information" to two top Russian officials by Trump, chances of his success in pushing through his pro-growth pledges are ebbing. His healthcare bill is also facing political gridlocks. Whenever uncertainty flared up, equities went into a tailspin and gave a boost to safe haven ETFs like the SPDR Gold Trust ETF (NYSEARCA:GLD). The fund is up 8.5% so far this year (as of June 22, 2017).
Tech Rally and Crash
Thanks to the improving technology sector, the tech-heavy Nasdaq Composite Index inched past the huge milestone of 6,000 for the first time in late April. The rise of e-commerce and cloud services have created a sound operating backdrop and fundamentals for the tech sector. However, the stupendous rally made the space guilty of overvaluation, causing a crash in June. Some of the top-performing tech ETFs are the ARK Web x.0 ETF (NYSEARCA:ARKW), the PowerShares NASDAQ Internet Portfolio ETF (NASDAQ:PNQI) and the First Trust NASDAQ-100-Tech Index ETF (NASDAQ:QTEC), which have added about 44.9%, 27.6% and 23.3% respectively in the year-to-date frame (as of June 22, 2017).
Eurozone Back with a Bang
The eurozone saw a strong start to the year, thanks to economic improvement and upbeat corporate earnings. Also, receding political upheaval on favorable election results in France and the Netherlands augur well for the region. Some of the top-performing Europe ETFs in the year-to-date frame are the Barclays ETN + FI Enhanced Europe 50 ETN (NYSEARCA:FEEU) (up 33.8%), the iShares MSCI Germany Small Cap Index ETF (BATS:EWGS) (up 27.9%) and the Deutsche X-trackers MSCI Italy Hedged Equity ETF (BATS:DBIT) (up 25.2%).
Two Fed Rate Hikes
The Fed has enacted two rate hikes this year, one in March and the other in June. It also indicated its plans of normalizing its $4.2 trillion balance sheet as soon as this year and gradually speeding up the process. Fed officials now plan one more rate hike this year.
However, U.S. inflation remains subdued. Along with inflation concerns, a report that a probe against Donald Trump to see if he tried to manipulate election results, some downbeat economic readings and a steep slump in crude oil prices kept investors edgy.
As a result, yields of the benchmark 10-year U.S. Treasury dropped 30 bps to 2.15% on June 22 from the start of the year. The long-term U.S. Treasury fund iShares 20+ Year Treasury Bond ETF (NYSEARCA:TLT) has advanced 8.4% this year (as of June 22, 2017).
Oil Slips to Bear Market Despite Output Cut Extension
The world's two top oil producers agreed in May to prolong their ongoing output cut from the first half of 2017 to the end of the first quarter of 2018. Even this couldn't salvage oil price, as surging U.S. supplies outdid OPEC cuts.
Oil dropped more than 20% in mid-June from its recent high, indicating a bear market and marking "the biggest first half slide for Brent since 1997." Lower Chinese refinery activity also led to this catastrophe. The United States Brent Oil ETF (NYSEARCA:BNO) has lost about 23% so far this year (as of June 22, 2017), while the United States Oil ETF (NYSEARCA:USO) is down about 25.1%.
A-Shares to Be Added to MSCI EM Index
After years of denials, MSCI finally announced in mid-June that it will add China A-Shares in the MSCI Emerging Markets Index and the MSCI ACWI Index beginning June 2018. This move will likely let mainland China's stock market to see capital inflows of about $17 billion or more, as per an MSCI executive. Notably, A-Shares exchange-traded fund KraneShares Bosera MSCI China A ETF (NYSEARCA:KBA) is up 11% so far this year (as of June 22, 2017).