May ETF Asset Report: Bond Funds Soar, U.S. Equities Suffer - ETF News And Commentary


The uncertainty in the stock market during the month of May is at least partially explained by the saying, "Sell in May and Go Away". If we look at the past five-year trend, the index shed about 9% in 2010, 1% in 2011 and 7% in 2012 but gained 3% in 2013 and 2% this May.

Nevertheless, we view the performance of May 2014 as quite bullish especially given the contraction in the U.S. GDP data and some risk-off trade sentiments that are still prevailing in the market (read: Sell in May and Go Away with These Inverse ETFs ).  

To add to this, the QE wrap-up and geopolitical tensions were in place to leave investors pondering about where to invest their money and realize gains. Let's see how this proverbially cursed month has impacted asset growth in the ETF industry:

Top Gainers of May

U.S. Intermediate-Term Treasury bonds

iShares 7-10 Year Treasury Bond ( IEF ) and ProShares Ultra 7-10 Year Treasury ( UST ) were the top two asset gatherers, hauling in around $5.2 billion and $1.9 billion in assets. While IEF tracks the Barclays Capital U.S. 7-10 Year Treasury Bond Index, UST gives daily two times leveraged exposure to the same index.

This year has proven lucky for intermediate and long-term Treasury bond ETFs thanks to a steep fall in yields. Yields on 10-year Treasury slipped 570 bps to 2.48% in the month of May bringing investors back to Treasury bonds for safe haven investments amid concerns related to the tapering of the monetary stimulus program and a slow revival of the U.S. economy (read: Long-Term Treasury Bond ETF Investing 101 ).

Developed Markets & Europe

Vanguard FTSE Developed Markets ( VEA ) and iShares MSCI EMU ETF ( EZU ) saw inflows of around $945 million and $649 million, respectively, which made the duo the third and eighth biggest asset accumulators in May.

Though Europe is still far from astronomical growth, the Euro zone left behind the wretched debt-crisis in 2013. As a result, investors have started to buy into the European recovery story, and are pouring their money into European-focused ETFs in order to play the trend.

Emerging Markets

Emerging markets took the center stage last month thanks to the low interest rates in the developed nations. Also, several nations like India, Indonesia, Brazil and Turkey hit new highs last month either on election hopes or reform-oriented governments taking charge. This made iShares MSCI Emerging Markets ( EEM ) the fourth-largest asset gatherer last month.

REIT sector

Two REIT ETFs - iShares U.S. Real Estate ( IYR ) and Vanguard REIT ( VNQ ) - have garnered assets worth of $751.2 million and $637.9 million and made a place in the top 10 asset creators' list. A low interest rate environment was basically the duo's key to success.

Nasdaq-100 Index

This Index consists of 100 of the largest domestic and international non-financial companies listed on the Nasdaq Stock Market.  Investors should note that Nasdaq was hit hard this year on high-beta pain.

However, somewhat better economic indicators, bullish housing data and fair valuation might have again brought investors back to this space. As a result, PowerShares QQQ ( QQQ ) tracking the said index pulled in about $783 million in assets.

Losers of May

Small-Cap U.S. Equities

Small-cap stocks which had an impressive run last year and contributed a lot to the broader market rally took a beating last month mainly due to valuation concern. Russell 2000 - has been the worst hit by the recent momentum sell-off.

As a result, iShares Russell 2000 ETF ( IWM ) measuring the performance of the small-cap slice of the U.S. equity segment by tracking the Russell 2000 Index and ProShares Ultra Russell 2000 ETF ( UWM ) which offers 2x returns on the same index, came first and third in the asset losers list. IWM and UWM redeemed about $4.83 billion and $1.46 billion, respectively (read: 3 Small Cap ETFs Outperforming the Russell 2000 Index ).

S&P 500 Index

Though the S&P 500 Index is hitting new highs since late-last month, ETFs tracking the index - SPDR S&P 500 ( SPY ), ProShares Ultra S&P 500 ( SSO ) (leveraged ETF) and   iShares Core S&P 500 ( IVV ) shed about $1.64 billion, $1.1 billion and $931.7 million in assets, respectively. Overvaluation concerns and lack of upbeat economic indicators throughout the month put these ETFs in top 10 asset losers' list.

However, things are shaping up well for the index to start the month of June. Some positive response from economic gauges like consumer confidence, housing data and decline in initial claims might give the index a much-needed respite this month (read: Beat the Market with Fundamentally Strong ETFs ).

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ISHARS-7-10YTB (IEF): ETF Research Reports

VANGD-FTSE DV M (VEA): ETF Research Reports

ISHARS-EMG MKT (EEM): ETF Research Reports

ISHARS-US REAL (IYR): ETF Research Reports

ISHARS-R 2000 (IWM): ETF Research Reports

PRO-ULTR S&P500 (SSO): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , ETFs

Referenced Stocks: IEF , VEA , EEM , IYR , IWM

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