ETF asset flows are a cool—if lagging—indicator of investor sentiment. They have no predictive value, per se, but they tell us where investors have been putting money to work in ETFs.
At ETF.com, we track asset flows on a regular basis. This time around, we went looking for the ETFs that have attracted the most money since the market hit a low on March 23.
If you remember, March 23 was the day the Federal Reserve unveiled its aggressive and bold plan to ensure governments and companies could remain liquid in an economic shutdown, vowing to buy all manner of assets.
The news offered a much-needed underpinning to the market, triggering a recovery rally that has the S&P 500 up more than 24% since then.
In the March 23 to May 14 time frame, here are the five ETFs that have gathered the most assets:
|iShares iBoxx USD Investment Grade Corporate Bond ETF||LQD||$12.1B||$45.18B|
|SPDR Gold Trust||GLD||$9.7B||$60.67B|
|iShares iBoxx USD High Yield Corporate Bond ETF||HYG||$6.2B||$20.98B|
|Health Care Select Sector SPDR Fund||XLV||$4.5B||$25.75B|
|United States Oil Fund LP||USO||$4.4B||$3.75B|
Sources: ETF.com, FactSet data
At a quick glance, none of these tickers are too surprising.
Corporate Bonds In Vogue
For starters, part of the Fed’s plan included purchasing corporate bond ETFs—a first for the Central Bank. Fed buying didn’t really take place until this week (beginning May 12), and it hasn’t been all that significant.
But it seems investors were eager to front-run that train, piling into LQD as well as HYG on the heels of the Fed’s announcement in late March.
From a fundamental perspective, corporate debt remains tricky terrain in an economy still largely shut down and/or working remotely. Some analysts have been calling for big spikes in defaults in the second half of the year, and the most recent earnings have only begun to tell the tale of uncertainty that has characterized most companies’ guidance up to now.
Still, knowing that the Fed is still and will be there to provide liquidity has been enough to send investors rushing into LQD and HYG, as the funds rallied 21% and 14%, respectively, from March 23 to date.
Gold: Ultimate Safe Haven
Contrary to the risk-taking we’re seeing in funds like HYG is the demand for the safety of gold in GLD. Gold prices last week hit three-week highs, testing 2013’s high levels, as “uncertainty” remains the most used word to describe what’s ahead.
That uncertainty about the outlook for economic growth both in the U.S. and abroad in the face of a global pandemic, combined with an environment of ultra-low rates—lowered recently again by the Fed to around zero—have been the perfect fuel to push gold prices as well as demand for the precious metal higher.
Health Care Holds The Key
Another not-too-surprising find among the most popular ETFs in recent weeks is XLV. The sector is the second strongest S&P 500 sector year to date, and since March 23, it has rallied more than 27%. A global pandemic will do that.
While not all subsegments of health care benefit the same way, demand for everything from medical equipment to medical expertise to drug solutions as a new virus circulates globally have offered ample support for the sector.
XLV is the biggest and most traded health care ETF, making it a popular choice for sector rotation and trading activity in this environment.
Wild Ride In Oil
Finally, we have USO among the top five. The fund has been through a lot in the last few weeks, to the point that it no longer resembles its older self pre-March 23. (Read: Biggest Oil ETF Shakes Up Structure)
As shelter-in-place orders became the norm, and many businesses shut down, demand for oil dropped dramatically at a time when supply was more than abundant. The result of that massive imbalance was oil prices trading at negative levels for a brief period in late April.
Meanwhile, investors kept rushing in, looking to buy the bottom in the oil market, and ride the recovery that would undoubtedly come as the economy reopened.
That rush of money into USO—the most traded vehicle offering the closest to spot oil price performance an investor could get—pushed the ETF against position limits, as well as completely out of issues to share. (Read: Why You Can’t Buy Spot Oil)
In the end, USO had to start investing in oil futures contracts farther down the curve (to accommodate position limits), and it had to halt creations until it received approval from regulators to issue more.
No new money has been able to enter USO since April 22. But between March 23 and that creation halt day, the fund welcomed $4.4 billion in fresh net assets, even as it tanked in performance. Between March 23 and today, USO is down 43%. Year to date, the ETF’s share price has dropped 78%.
ETF Performance March 23 To-Date
Chart courtesy of StockCharts.com
Contact Cinthia Murphy at [email protected]