Despite pressure on bonds and equity market volatility, 2023 will go down as another solid year in terms of inflows to U.S.-listed exchange traded products.
Even with those headwinds, assets under management at U.S.-listed exchange traded funds (ETFs) and exchange traded notes, resided at $7.16 trillion at the end of the third quarter, up 10.1% from $6.51 trillion at the end of last year.
“During September, ETFs gathered net inflows of $39.25 Bn. Equity ETFs gathered net inflows of $21 Bn during September, bringing YTD net inflows to $141.78 Bn, significantly lower than the $201.42 Bn in YTD net inflows in 2022. Fixed income ETFs had net inflows of $7.09 Bn during September, bringing YTD net inflows $117.03 Bn, lower than the $118.35 Bn in net inflows YTD in 2022,” according to ETFGI, a London-based ETF research firm.
At the end of the third quarter, there 3,275 exchange traded products trading in the U.S., and that figured increased over the past month. That makes for daunting examination of some that are beloved by investors this year, but here are three that fit that bill.
iShares 20+ Year Treasury Bond ETF (TLT)
Among fixed income ETFs, the iShares 20+ Year Treasury Bond ETF (TLT) is one of the leaders in terms of 2023 inflows. That appears to be the product of investors wagering that the Federal Reserve will soften its stance on interest rate hikes and/or that Treasury yields will decline. As highlighted by TLT’s 11.92% loss, neither thesis is being rewarded as of yet.
With an effective duration of 16.2 years, TLT is one of the ideal ETFs with which to make such bets, but the fund’s year-to-date performance confirms the dangers of long duration fare when rates rise.
“Investors have swarmed this fund to lock in attractive bond yields before the Fed reverses course and cuts interest rates,” notes Morningstar analyst Ryan Jackson. “The problem is that many jumped on TLT too early, suffering losses as yields continued to climb. Investors that believe rates have finally peaked may find value in TLT now, but they should gear up for a bumpy ride that comes with long-duration portfolios.”
JPMorgan Equity Premium Income ETF (JEPI)
The JPMorgan Equity Premium Income ETF (JEPI) is just three and half years old, but it’s a story unto itself as it’s already home to more than $31 billion in assets under management. That’s confirmation JEPI has capitalized on investors’ budding enthusiasm for covered call ETFs.
While covered call ETFs, including JEPI, cap upside potential, the strategies are popular with income investors owing to big yields. For its part, JEPI sported a 30-day SEC yield of 7.90% at the end of the third quarter. Further underscoring investors affinity for JEPI is the fact that that yield is delivered free of interest rate risk.
“JEPI has become a hit because it provides two things that were hard to find in recent years: income and stability,” adds Jackson. “But buy-and-hold investors should not expect this fund to produce the same long-term returns as traditional stock portfolios, and the income it generates is not particularly tax-efficient.”
Pacer U.S. Cash Cows 100 ETF (COWZ)
For the 12 months ending Sept. 30, the Pacer U.S. Cash Cows 100 ETF (COWZ) doubled in size. Today, COWZ is a $15.81 billion ETF with its seventh birthday lurking next month. COWZ screens the Russell 1000 for attractively valued companies generating significant free cash flow – an alluring trait at a time when unprofitable companies are out of fashion.
“The ability to generate a high free cash flow yield indicates a company is producing more cash than it needs to run the business and can invest in growth opportunities,” according to Pacer ETFs.
The strategy works. As noted by Morningstar’s Jackson, COWZ has been one of the best-performing mid-cap value funds over the trailing one-, three-, and five-year periods.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Todd Shriber
Todd Shriber got his start in financial markets as a reporter with Bloomberg News. Later, he became a trader at a Southern California-based long/short hedge fund where he specialized in trading sector and international ETFs leading up to and during the financial crisis. He would later become the web editor at ETF Trends. Currently, he analyzes, researches and writes on ETFs for a variety of Web-based publications and financial services firms.Shriber has been quoted in the Barron's, CNBC.com and the Wall Street Journal. His work has been published on Web sites such as Benzinga, ETF Daily News, ETF Trends, MarketWatch, Fox Business and Nasdaq.com.
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