Q3 ETF Asset Flow Report

The appeal of U.S. equities brightened in Q3, as the broader market steadied at the start of the quarter. The global market received the much-needed respite from the awful Brexit-led sell-off in late June. Rock-bottom yields in most developed economies and a less-than-feared impact of Brexit (at least so far) probably triggered a risk-on rally (read: Top ETF Stories of July).

Following an outstanding July, August has been moderate for U.S. equities. However, rising rate fears in late August oozed some blood out of the market. Also, volatility in the oil patch remained a key concern all through Q3. To close out the quarter, a dovish Fed and higher chances of Clinton winning the presidential election in November restored market sentiments.

Against this backdrop, let’s find out the top gainers and losers in terms of asset growth in Q3 (as of September 27, 2016) (source: etf.com).

U.S. Equities ETFs: The Bright Corner

Small-cap U.S. ETF iShares Russell 2000 ETF (IWM) also gathered about $1.4 billion and came first in the gainers’ list. Upbeat U.S. economic indicators, mainly in the early part of Q3, led to this trend (read: Consumer Confidence Hits 9-Year High: ETF Winners).

The S&P 500 was on radar as investors flocked to SPDR S&P 500 ETF (NYSE:SPY) Trust ( (AX:SPY) ). The fund garnered about $865.5 million in assets in the quarter. This is a clear indication of restored confidence in the riskier asset segments. In fact, the S&P 500 hit record highs many times in July.

Tech-heavy Nasdaq-100-based ETF PowerShares QQQ Trust QQQ has gathered about $619.9 million in Q3 based on upbeat earnings and return of risk-on sentiments to the market (read: ETFs in Focus on the Nasdaq Rally).

Corporate Bond ETFs Gaining Precedence

Attesting to risk-on sentiments and some improvement in the oil patch, high-yield bond ETFs like iShares iBoxx $ High Yield Corporate Bond ETF ( (TO:HYG) ) and SPDR Barclays (LON:BARC) High Yield Bond ETF (JNK) added $810.4 million and $690.1 million in assets, respectively. Since yields on the 10-year U.S. Treasury plunged to extremely low levels, investors also thronged to iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), which hoarded about $586.6 million.

Value ETFs Prevail Over Growth ETFs

With market sentiments improving but still edgy, investors poured money into value ETFs than growth ETFs. After all, speculation about the timing of the Fed rate hike, presidential election in the U.S., overvaluation concerns over domestic stocks and global growth issues kept investors searching for value.

As a result, iShares Russell 1000 Value ETF (IWD) garnered about $812.4 millionin Q3 while iShares Russell 2000 Growth ETF IWO saw about $181.6 million of inflows (read: 4 Low P/E Value ETFs & Stocks to Wait Out Uncertainty).

Hedged International Equites: A Spoiler

Deutsche X-trackers MSCI EAFE Hedged Equity ETF DBEF shed about $1.35 billion in assets as currencies like yen and euro occasionally showed strength against the greenback during Q3 (read: Can Japan ETFs Soar Without Helicopter Money?).

This curbed demand for currency-hedged international equities ETF. Another currency-hedged ETF iShares Currency Hedged MSCI EAFE ETF HEFA saw about $242.7 million in assets gushing out of the fund.

Short-Term Treasury Bonds Out of Favor

As the Fed rate hike bets stirred up in mid Q3, investors started dumping bonds with shorter maturities. This tendency clearly explains why iShares 1-3 Year Treasury Bond ETF (SHY) lost about $391.1 million in assets.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>