May ETF Asset Report: Quality U.S. Equities Win

The month of May has been all about trade war fears, which renewed threats of recession all over again. It all started with the Trump administration lifting tariffs on $200 billion worth of Chinese goods from 10% to 25% on May 10 and China announcing a retaliatory move — a tariff hike on $60 billion worth of American goods to 25%, starting Jun 1. President Donald Trump is also considering additional tariffs on an incremental $325 billion of Chinese imports (read: Full-Blown Trade Spat: 5 Most-Vulnerable Sector ETFs & Stocks).

Additionally, Trump has banned Chinese firm Huawei Technologies and 26 of its affiliates from doing business with American companies effective May 17, though it provided a 90-day exemption (read: Intensifying Trade Woes Trigger Rally in Treasury ETFs).

Let's see how these events impacted asset growth in the ETF industry in May (as of May 24, 2019) (per etf.com).

Low Volatility and Quality ETFs Sizzle

Quality and low volatility ETFs have been on the radar as investors flocked to iShares Edge MSCI Min Vol U.S.A. ETF USMV and iShares Edge MSCI U.S.A. Quality Factor ETF QUAL. The funds garnered a respectively $1.92 billion and $1.68 billion in assets in the month.

Despite losses, iShares Core S&P 500 ETF (IVV), Vanguard Total Stock Market ETF ( (ASX:VTI) ) and iShares Core S&P Total U.S. Stock Market ETF (ITOT) have added about $1.34 billion, $965.7 million and $661.9 million in assets. This was a confirmation of solid investor confidence in U.S. equities. A dovish Fed and improved domestic growth amid the developed market pack have led to solid fund flow.

Total Bond Market in Investors’ Favor

As flight-to-safety plays dominated global markets, the benchmark 10-year U.S. Treasury note yield slumped to 2.32%, down from 2.52% seen at the start of the month. Some key parts of the yield curve are inverted. Benchmark 10-year yield slipped below the one-year mark which signals an impending recession. The 10-year Treasury yield slumped to a 19-month low

Since bond yields react negatively to prices, bond ETFs rallied in anticipation of a slowing U.S. economy. Vanguard Total Bond Market ETF BND and iShares Core U.S. Aggregate Bond ETF (ASX:AGG) attracted about $1.14 billion and $1.08 billion, respectively. Higher current income and safety favored the funds.

ESG ETF Gains

iShares ESG MSCI USA Leaders ETF (SUSL) has garnered about $1.16 billion. Environmental, social and governance (ESG) investing is the new big thing in the ETF industry. It is highly popular among investors. Total assets invested sustainably in the United States grew to 26% in 2018 from 22% in 2016, according to a Global Sustainable Investing Alliance report (read: 6 ESG ETFs Beating SPY (NYSE:SPY) This Year: Is There More Room to Run?).

Emerging Market Under Pressure on Trade Woes

iShares MSCI Emerging Markets ETF (NYSE:EEM) EEM lost about $2.0 billion in assets in May. Heightened US-China trade tensions have reduced investors’ interest in this China-heavy ETF (read: Markets & ETFs Digest Trade Spat: Is It a Dead-Cat-Bounce?).

Corporate Bonds lost Appeal

Both iShares iBoxx USD Investment Grade Corporate Bond ETF (LQD) and SPDR Bloomberg Barclays (LON:BARC) High Yield Bond ETF (JNK) fell out of investors’ favor as a respective of $1.54 billion and $739.7 million in assets gushed out of the funds.

Japan Lost Luster

iShares MSCI Japan ETF (EWJ) has shed about $935.1 million in assets in May. A strengthening yen has chances of weighing on export-oriented Japanese stocks, which is why the fund EWJ failed to amass assets (read: Japan's Economy Beats Growth Forecasts: ETFs in Spotlight).

Financial Sector Shed Assets

As long-term bond yields are falling faster than short-term ones, net interest rate margins of banks started contracting. As a result, Financial Select Sector SPDR Fund XLF saw $970.6 million in assets leaking out of the fund.

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