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Week In ETFs And Predictions For 2017

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U.S.-listed ETFs attracted nearly $9 billion in fresh net inflows in the week ended Jan. 26—a healthy intake for a market that keeps on growing.

While everyone is talking about the end of the 30-year bond bull market, and bearish outlook for U.S. Treasurys in the face of expectations for several interest rate hikes in the next few years, U.S. bond ETFs still managed to rake in the most assets.

The most popular ETF in the week was the Vanguard Short-Term Bond Index Fund (BSV), with net inflows of more than $1.3 billion. The No. 2 ETF in terms of creations was the iShares Core U.S. Treasury Bond ETF (GOVT)—a fund that saw its asset base surge 33% in the past five business days. In all, U.S. fixed-income ETFs attracted more than $6.7 billion in net new assets.

On the flip side, U.S. equity ETFs were net losers in the past week, bleeding some $200 million in outflows.

The least popular segment of the ETF market was leveraged ETFs. As a category, these ETFs bled more than $1.7 billion in assets last week, led by outflows of $1.4 billion from the Credit Suisse FI Large Cap Growth Enhanced ETN (FLGE). FLGE offers 2X leveraged exposure to an index of U.S. large-cap growth stocks. The net redemptions seen in the past five business days amounted to an AUM loss of more than 61% for the fund.

In all, the ETF market in the U.S. ended the week with $2.65 trillion in assets.

The tables below show what was popular, what wasn’t, and the asset class breakdown of asset flows for the week ended Jan. 26:

Doll’s Predictions For 2017

Bob Doll, senior portfolio manager and chief equity strategist for Nuveen Asset Management, last week laid out his predictions for the year, at Inside ETFs in Hollywood, Florida, starting with a relatively safe call for U.S. and global economic growth to improve modestly in 2017 as the dollar reaches parity with the euro.

The basis for this prediction isn't so much big fiscal stimulus from a Donald Trump administration―it will be at least six months before any fiscal policy legislation is enacted, according to Doll―but rather, a pickup in consumer confidence.

Among some of his other forecasts for the year were:

Tax reform won’t come easily: On net, taxes will go down, he says, but it will take longer to happen, and the impact won't be as big as people hope.

Stocks will outperform bonds: Doll emphatically believes the 35-year bull market in bonds ended last year, and that the low print of 1.37% reached on the 10-year Treasury will never be seen again. Instead, the yield will probably increase by 50 basis points to hit 3% by the end of 2017. Meanwhile, stocks will outperform bonds during the year, in Doll's view. This will be the sixth year in a row that's happened, the longest streak in 20 years.

Health care and tech to outperform: Doll says that financials, health care and technology will outperform energy, utilities and materials. Financials are a beneficiary of asset reflation, higher interest rates, easing regulations and cheap valuations. Their biggest risk is a global financial accident. He likes health care because of strong revenue and earnings growth, innovation and expenditure growth, and discount valuations. The biggest obstacle he sees for this sector is political and headline risk.

This will be a stock picker’s market: "This is a stock picker's world for the first time in a while," he said. Doll mentioned that active tends to beat passive when small-caps outperform large-caps, when international equities outperform U.S. equities, when value stocks outperform growth stocks, when equal weighting outperforms market-cap weighting, when correlations are low, when interest rates rise and when credit spreads fall.

Rising nationalist trends: Doll said that nationalist and protectionist trends will rise as pro-domestic policies are pursued globally. Whether those trends are bullish or bearish for risk assets is uncertain. In the U.S., "we've mostly seen the pro-growth Donald Trump," said Doll. "But if the protectionist Trump shows up, you need to sell risk assets."

Maturing bull market: Doll ended his talk with one of his favorite quotes by Sir John Templeton: "Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria." Doll believes that 2017 is a year of transition between the skepticism phase and the optimism phase. That means overall returns are likely to be mediocre, though there's plenty of opportunity for active managers to outperform with good stock selection, in his view.

Drew Voros can be reached at dvoros@etf.com.

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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 Nasdaq, Inc.


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

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