U.S. equities have pushed to new heights in the New Year, with the Dow Jones Industrial Average now trading above 25,000 for the first time and continuing to climb to fresh records this month.
However, despite the record-setting rally, investors are pulling money out of stock exchange traded funds.
Over the past week, the SPDR S&P 500 ETF (NYSEArca: SPY) experienced $2.1 billion in net redemptions, PowerShares QQQ (NasdaqGM: QQQ) saw $1.5 billion in outflows and iShares Russell 2000 ETF (NYSEArca: IWM) lost $1.4 billion, according to XTF data.
|SPY||SPDR S&P 500 ETF||380.36||-1.97||-0.52%|
|QQQ||INVESCO QQQ NASDAQ 100||314.14||+1.31||+0.42%|
|DIA||SPDR DOW JONES INDUSTRIAL AVG ETF T SER'1' UNITS OF BEN INT NPV||309.45||-4.53||-1.44%|
On the other hand, the most popular ETF play over the past week was a broad fixed-income related option, the iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG), which saw $862 million in net inflows.
The disconnect between equity market enthusiasm and the ongoing rally is not anything new as many have described the multi-year move as the most unloved stock rally. With the U.S. stock market extending, more investors may be growing antsy over their equity exposure and could be trimming allocations in anticipation of a potential turn.
According to the Wall Street Journal, survey data has indicated that American stock ownership is on the decline. About 54% of investors on average hold stocks for the current bull market from 2009 to 2017. In contrast, 62% of Americans reported equity investments between the dot-com bubble and the prelude to the global financial downturn.
Nevertheless, if investors are concerned about valuations in a extended bull market environment, one can shift their focus away from high-flying, growth-oriented stocks and look to the value style instead.
Value stocks usually trade at lower prices relative to fundamental measures of value, like earnings and the book value of assets. On the other hand, growth-oriented stocks tend to run at higher valuations since investors expect the rapid growth in those company measures, but more are growing wary of high valuations.
For example, the iShares MSCI USA Value Factor ETF (CBOE: VLUE) has recently become a popular avenue for accessing value stocks while the Vanguard Value ETF (NYSEArca: VTV) is one of the largest smart beta ETFs of any stripe. In fact, several of the largest smart beta ETFs are value funds.
VLUE seeks to track the performance of an index that measures the performance of U.S. large- and mid-capitalization stocks with value characteristics and relatively lower valuations.
VTV follows the CRSP US Large Cap Value Index and is one of the most widely followed value ETFs. CRSP includes sales/price and historical earnings/price ratio as well as 12-month forward earnings/price ratio and dividend yield to form its value indexes.
The iShares Russell 1000 Value ETF (NYSEArca: IWD) is the biggest U.S. large-cap ETF on the market, providing exposure to value stocks taken from the widely observed Russell 1000 Index.
This article was provided courtesy of our partners at etftrends.com.