Investors Take a Dip in These Popular ETFs

By Tom LydonETFsFOXBusiness

While U.S. equities recorded modest gains in the month of May, exchange traded fund investors largely targeted popular plays that staged a pullback, re-positioning to potentially capture further value ahead.

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The SPDR Gold Shares (NYSE:GLD) was the most popular ETF play of May, attracting almost $2.7 billion in net inflows, according to data. GLD is backed by physical gold bullion stored in London vaults and tries to track the price movement in the precious metal. The ETF is also the crowd favorite this year, accumulating $8.8 billion in net inflows year-to-date.

The gold trade has dulled over the past month, with GLD down 2.9%, after the Federal Reserve revealed a hawkish stance on interest rates in response to an improving U.S. economy. However, gold bugs saw the pullback as an opportunity to accumulate more bullion. While a Fed rate hike would be a huge negative on the precious metal, gold traders may point to supporting factors like negative or zero interest rate policies around the globe and the hedging benefits of the hard asset in the event of lingering uncertainty, such as the so-called Brexit vote later this month.

Similarly, the VanEck Vectors Gold Miners ETF (NYSE:GDX), which declined 4.1% over the past month on weakening bullion prices, also attracted $760 million in May.

ETF investors also continue to favor the value investment theme, even though the value style lagged growth over the past month. While value investments took a back seat to growth, investors may have also seen the pullback as an opportunity to buildup a larger position in a volatile year ahead.

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For instance, the Vanguard Value ETF (NYSE:VTV) dipped 0.3% over the past month while the Vanguard Growth ETF (NYSE:VUG) gained 1.1%. However, VTV attracted $800 million in inflows over May. Similarly, the iShares Russell 1000 Value ETF (NYSE:IWD) brought in $680 million and low-volubility strategies that have a value tilt, such as the iShares Edge MSCI Min Vol USA ETF (NYSE:USMV) and iShares Edge MSCI Min Vol EAFE ETF (NYSE:EFAV), added $650 million and $660 million, respectively.

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In the fixed-income space, the iShares TIPS Bond ETF (NYSE:TIP) stood out, experiencing $640 million in net inflows for the month. The rising interest in Treasury inflation protected securities suggests that more fixed-income investors are beginning to worry about the negative effects of rising inflationary pressures on their bond portfolios - higher inflation usually translates to lower real yields. Investors would typically enter into a TIPS trade ahead of rising inflation to maximize the benefits.

Meanwhile, growth ETFs saw some significant outflows, despite outperforming in May. The PowerShares QQQ (Nasdaq:QQQ), which tracks the tech heavy Nasdaq-100 Index, saw a little over $1 billion in outflows and the Technology Select Sector SPDR (NYSE:XLK) shrunk by a little over $900 million.

ETF investors also pulled out of broad equity market plays. The SPDR S&P 500 (NYSE:SPY) saw $3.6 billion in outflows, iShares Russell 2000 ETF (NYSE:IWM) lost $1 billion and SPDR Dow Jones Industrial Average ETF (NYSE:DIA) experienced $810 million in outflows.

The markets also shunned the emerging economies, Japan and the Eurozone. Investors yanking $3.2 billion from iShares MSCI Emerging Markets ETF (NYSE:EEM), which may have been accelerated in response to the Federal Reserve's more hawkish stance. Additionally, investors pulled $1.4 billion from iShares MSCI EMU ETF (NYSE:EZU) and $1 billion from iShares MSCI Japan ETF (NYSE:EWJ). Market observers have been growing more disillusioned with the former high flyers as the foreign central banks' accommodative measures have not translated to outsized economic growth.

Full disclosure: Tom Lydon's clients own shares of GLD and SPY.

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