ETF Asset Flow Roundup: Bonds Gain, Equity Lags

By Sweta Killa of Zacks.com

Monday, August 24, 2015 1:50 PM EDT

The twin attacks of China slowdown and rate hike uncertainty dealt a big blow to the U.S. stock market last week, resulting in a nasty run in the final session. Notably, the Dow Jones and the S&P 500 tumbled nearly 3.2% on Friday while the Nasdaq Composite Index plunged 3.5%.

Worries about prolonged weakness in China, especially after the devaluation of the currency in early August, continued to weigh on the stocks and currencies across the globe with an extended slump in commodities. The Fed minutes released last week lowered the chance of an interest rate increase next month as many officials are concerned about soft inflation, tepid wage growth and global economic slowdown despite the fact that the U.S. job market is accelerating (read: Gold Mining ETFs Benefit Most from Fed Minutes).

The mood on Wall Street soured further on Friday following disappointing Chinese factory activity data, which contracted at their fastest pace in over six years in August. Adding to the woes are increased violence in Turkey, snap election in Greece, slowdown in Japan, and the resumption of the oil price slide, which is yet again threatening global growth and deflationary pressure. In fact, U.S. crude has dropped below $40 per barrel, its lowest price since the financial crisis six years ago (read: Oil Tumbles to Six-Year Low: ETF Tale of Two Sides).

A wave of intense selling took away 6% value from the Dow and S&P 500 and 7% from the Nasdaq last week. This represents the worst weekly slump since 2011 and sent the major indices into a correction, resulting in a fall of 10% from the recent high.

All these situations led to risk-off trade, compelling investors to dump the riskier assets and take a flight to safety. As a result, U.S. fixed income ETFs were the winners last week, gathering about $1.5 billion in total assets, as per the ETF.com. On the other hand, U.S. equity ETFs and international equity ETFs saw outflows of around $950 million each.

3 Bond ETFs Gathering Maximum Assets

The ultra-popular long-term U.S. Treasury ETF – iShares 20+ Year Treasury Bond ((TLT - ETF report)) – led the way last week, gathering about $510.7 million in capital. This took the fund’s asset base to around $5.6 billion. The fund targets the long-term securities with average maturity of 26.59 years and effective duration of 17.50 years. It tracks the Barclays U.S. 20+ Year Treasury Bond Index, charging investors 15 bps in fees. The ETF added nearly 2% last week and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook (read:U.S. Treasury ETFs Rise on Yuan Devaluation).

Another top asset gainer – iShares iBoxx $ Investment Grade Corporate Bond ETF ((LQD - ETF report)) – is from the corporate bond world. The fund pulled in nearly $428 million in capital last week, propelling the total asset base to $21 billion. It provides exposure to the high quality bonds (BBB and plus) with about 65% going to mid-term bonds and 34% targeting the long duration bonds. As a result, it has relatively higher default risk and interest rate risk with average maturity of 12.28 years and effective duration of 8.06 years. Expense ratio came in at 0.15%. The product was up 0.5% last week and has a Zacks ETF Rank of 3 with a High risk outlook.

Short-term Treasury ETF – iShares 1-3 Year Treasury Bond ETF ((SHY - ETF report)) – also saw a substantial inflow of around $400 million last week. This fund targets the short end of the yield curve with average maturity of 1.83 years and effective duration of 1.80 years. It has amassed $11.3 billion in its asset base and charges 15 bps in fees per year from investors. SHY added just 0.2% last week and has a Zacks ETF Rank of 3 with a low risk outlook (see: all the Government Bond ETFs here).

Equity ETFs Lost Momentum

In the equity world, the U.S. small cap ETF – iShares Russell 2000 ((IWM -ETF report)) – having AUM of $25.6 billion, was the top asset loser pulling out more than $1.7 billion in capital last week. The product provides exposure to a broad basket of 1,967 stocks by tracking the Russell 2000 Index with none holding more than 0.30% of assets. Sector wise, financials takes the top spot with one-fourth share, followed by information technology (16.8%), health care (16.3%), consumer discretionary (14.6%) and industrials (12.6%). The product charges 20 bps in annual fees and lost 4.5% last week. It has a Zacks ETF Rank of 3 with a High risk outlook.

The ultra-popular SPDR S&P 500 ((SPY - ETF report)), with a total asset base of around $171.5 billion, saw outflow of $977 million. This ETF provides exposure to the large cap segment of the broad U.S. equity market by tracking the S&P 500 index, and holds 505 stocks in its basket. Apple (AAPL - Analyst Report) and Microsoft (MSFT - Analyst Report) occupy the top two positions with 3.6% and 2.1% of assets, respectively. Other securities hold less than 1.74% share. The fund is widely spread across a number of sectors and charges 9 bps in fees per year. The fund was down 5.7% last week and has a Zacks ETF Rank of 3 with a Medium risk outlook.

Apart from U.S. equities, the most popular emerging market ETF – iShares MSCI Emerging Markets ETF ((EEM - ETF report)) – shed $340.5 million in its asset base last week, which has pulled its total asset base down to $22.4 billion. The fund tracks the MSCI Emerging Markets Index and charges 68 bps in annual fees from investors (read: Emerging Market ETFs Slip to 52-Week Lows).

Holding 845 securities, the product is widely spread out across various securities but is tilted toward the financial sector at 29%, followed by information technology (17.5%). Among the countries, China takes the top spot at 23.8% while South Korea and Taiwan round off the next two spots with double-digit exposure each. The fund lost 7.9% last week and has a Zacks ETF Rank of 3 with a Medium risk outlook.