Weekly ETF Roundup: Bond Rocks, US Equity Lags

Last week, renewed trade tensions unsettled investors badly, thus inducing a steep sell-off in the broad U.S. stock market. In fact, major indices logged in the worst weekly drop of 2019 with the S&P 500 down nearly 4.5% from its all-time high.

The trade-related anxiety flared up when President Donald Trump threatened to raise the tariffs on Chinese goods if the deal was not made and China vowed to counterattack if Trump goes ahead with the new tariff. As the latest trade talks end with no deal, Trump finally levied a higher tariff of 25% on Chinese goods worth $200 billion, up from 10% rate at 12.01 a.m. on May 10 (read: Trade-Sensitive Sector ETFs in Focus on New Tariff Threat).

As a result, overall ETFs saw outflows for the first time in six weeks, pulling out $9.75 billion capital last week, per etf.com.

Fixed Income ETFs Shine

Trade tariff threats raised concerns over global growth, compelling investors to shift toward safer havens like bonds. As such, the U.S. fixed income ETF has attracted $1.3 billion in fresh cash last week withiShares Broad USD High Yield Corporate Bond ETF USHY, the Vanguard Intermediate-Term Corporate Bond ETF VCIT and the iShares Short-Term Corporate Bond ETF IGSB drawing in $370 million, $199 million and $192 million, respectively.

Though the three funds offer exposure to corporate bonds, USHY targets high-yield bonds while VCIT and IGSB focus on mid-term and short-term bonds, each. These products have a Zacks ETF Rank #3 (Hold) (read: ETF Investing 2019: Best Ideas & Trends).

Hot Sector ETFs

Financial, utilities and consumer staples caught maximum investors’ fancy last week with the ultra-popular XLF, XLU and XLP gathering about $787 million, $542 million and $509 million, respectively. While XLF carries a Zacks ETF Rank #2 (Buy), XLU has a Zacks ETF Rank of 3 and XLP, a Zacks ETF Rank #1 (Strong Buy).

Financial sector has been seeing strong inflows, buoyed by a growing economy, which in turn, thrives on a solid job market, growing wages and the rising consumer confidence, leading to higher demand for all types of financial services. Meanwhile, being a low-beta sector, utility is relatively protected from large swings (ups and downs) in the stock market and is thus considered a defensive investment or a safe bet amid any economic or political turmoil (read: Forget Trade Fears, Invest in Defensive Sector ETFs).

Being defensive in nature, the consumer staples sector also sees steady demand in the event of an economic downturn due to its low level of correlation with economic cycles. It generally acts as a safe haven amid political and economic disturbance. Stocks in these sectors generally outperform during periods of low growth and high uncertainty.

U.S. Equity ETFs Underperform

U.S. equity ETFs lost all their sheen last week with outflows of $9.67 billion capital. The worst-performing ETF was SPDR S&P 500 (AX:SPY) with $9.4 billion outflows, followed by $2 billion outflows for Invesco QQQ QQQ. SPY, having a Zacks ETF Rank #2, tracks the S&P 500 Index while QQQ follows the Nasdaq-100 Index and sports a Zacks ETF Rank #1. However, the Zacks #2 Ranked Vanguard S&P 500 VOO tracking the S&P 500 Index saw inflows of $523 million (read: Defined Outcome ETFs for Downside Protection).

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Vanguard Intermediate-Term Corporate Bond ETF (VCIT): ETF Research Reports

Vanguard S&P 500 ETF (VOO): ETF Research Reports

Invesco QQQ (QQQ): ETF Research Reports

SPDR S&P 500 ETF (NYSE:SPY): ETF Research Reports

iShares Broad USD High Yield Corporate Bond ETF (USHY): ETF Research Reports

iShares Short-Term Corporate Bond ETF (IGSB): ETF Research Reports

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Zacks Investment Research