Investors Getting Their Risk On
Many expected a post-Brexit environment would weigh on sentiment and push investors toward safer assets. However, exchange traded funds that track stocks and riskier assets continued to draw investors over July, with the S&P 500 and emerging market exposure among the standouts.
The benchmark S&P 500 index reached a new all-time intraday high of 2,177.13 on the last trading day of July after a month of steady gains.
As the equities market pushed toward higher highs, investors funneled $13.7 billion into SPDR S&P 500 ETF (NYSE:SPY), $1.9 billion into iShares Core S&P 500 ETF (NYSE:IVV) and $1.2 billion into Vanguard 500 Index (NYSE:VOO) over July, according to ETF.com.
SPY is the largest ETF and the first U.S.-listed ETF to hit the market. The S&P 500 fund trades more than any other security, has the most liquid options market of any ETF and tight bid-ask spreads, which make it an ideal investment for institutional traders.
However, potential investor should be aware that SPY is structured as a unit investment trust and not a regulated investment company like other funds. Consequently, the structure prevents SPY from reinvesting dividends, holding securities that are not included in the index, like futures, or engage in securities lending. Moreover, the ETF has a one-month lag between the ex-dividend date and the payment of its dividends.
VOO and IVV have quickly gained traction as an alternative method for accessing the S&P 500. Potential investors should also be aware that VOO is considered a separate class share of its mutual fund. Investors mostly utilize the iShares and Vanguard options as a buy-and-hold option since their lower annual fees have a bigger impact on returns than trading costs.
Consequently, large and fast traders would probably prefer SPY while long-term investors would stick to cheaper VOO or IVV.
Meanwhile, the emerging market outlook has improved on signs of economic stabilization in China, recovering commodity prices and a depreciating U.S. dollar, which helped investors hone in on the undervalued asset category after the recent Brexit vote.
The outperformance in the developing market space helped drive investors into emerging market-related ETFs, with the iShares MSCI Emerging Markets ETF (NYSE:EEM), which tracks the benchmark MSCI Emerging Markets Index, attracting $3.7 billion in net inflows. Additionally, among the top 10 most popular ETFs by asset inflows for the past month, the iShares Core MSCI Emerging Markets ETF (NYSE:IEMG) added $1 billion and the iShares J.P. Morgan USD Emerging Markets Bond ETF (NYSE:EMB) attracted $1.5 billion.
The growth category also attracted its fair share of attention, with the PowerShares QQQ (Nasdaq:QQQ) bringing in $1.5 billion in inflows, on the rallying equities market, outperformance of the growth category and better-than-expected second quarter earnings results.
Investors may finally be favoring growth over value as top ETF outflows for July show Consumer Staples Select SPDR (NYSE:XLP) had $507 million in outflows, Financial Select Sector SPDR (NYSE:XLF) experienced $491 million in outflows and Utilities Select Sector SPDR (NYSE:XLU) shrunk by $425 million.
Additionally, among fixed-income options, riskier corporate credit remain the main draw. Over July, popular bond ETFs include iShares iBoxx $ Investment Grade Corporate Bond (NYSE:LQD), which attracted $1.8 billion in net inflows, and iShares iBoxx $ High Yield Corporate Bond ETF (NYSE:HYG), which saw $1.6 billion in inflows.
This article was provided by our partners at etftrends.com.
Full disclosure: Tom Lydon's clients own shares of SPY, LQD, HYG, EEM.