After major selloffs, investors have returned on mass to equity markets betting on a quick economic recovery. And looking at Nasdaq's list of top ETFs for the month ending 8 June, it's clear there’s been a shift away from cash assets towards more cyclical sectors.
Financial services, manufacturing and construction have seen more inflows, reversing the outflows seen at the start of the coronavirus outbreak as investors fled for safer assets. Airlines, in particular, look to have benefitted with the US Global Jets ETF topping the list.
Still, there's a lot of uncertainty in the marketplace right now. Governments could reverse lockdown measures and a second virus wave could happen. In short, the markets are nowhere near out of the woods.
Another area of contention is that rising inflows into top ETFs is coming from a new breed of millennial traders using platforms like Robinhood. The non-professionals could be looking to scoop up a bargain, artificially boosting rallies. However, Dave Nadig, chief investment officer and director of research at ETF Trends thinks there's more to it:
“I think it’s a mistake to think that the billion dollars that has flowed into [JETS] is all mom-and-pop investors. That’s not what we see in the 13F filings. It’s not what we see on the tape. It’s clear there are some very sophisticated folks out there, most likely hedge funds, using this. It’s a well-constructed fund if you’re trying to play the airline industry.”
“I think it’s a mistake to think that the billion dollars that has flowed into [JETS] is all mom-and-pop investors. That’s not what we see in the 13F filings... It’s a well-constructed fund if you’re trying to play the airline industry” - Dave Nadig, ETF Trends' chief investment officer
So at the start of June, which were the top ETFs investors were picking up?
Nasdaq top 10 ETFs week ending 8 June 2020
US Global Jets ETF (JETS)
iShares US Financial Services ETF (IYG)
SPDR S&P 400 Mid Cap Value ETF (MDYV)
SPDR Portfolio S&P 600 Small Cap ETF (SPSM)
JPMorgan BetaBuilders Europe ETF (BBEU)
Invesco KBW Bank ETF (KBWB)
iShares Edge MSCI USA Value Factor ETF (VLUE)
iShares Core S&P Small-Cap ETF (IJR)
iShares MSCI Brazil ETF (EWZ)
Invesco S&P 500 Equal Weight (RSP)
In focus: Nasdaq top 5 ETFs month ending 8 June 2020
After taking a battering at the end of February, airline stocks have mounted a sizable recovery. For a while it looked like planes would be permanently grounded as fears of zero-demand shook investor confidence. But with the resumption of some flights, the US Global Jets ETF is cruising right now.
US housing starts might have dropped to a five-year-low in April, but that hasn't stopped investors buying the iShare US Home Construction ETF (ITB). In the US construction has been one of the first economic activities to be phased back in. In a note Citi analysts said they expected 'starts and restarts to have likely reached a bottom in April.' Here's hoping.
Like airlines, banks took a beating at the start of the outbreak. One of the biggest cyclical sectors out there, hope of an economic recovery has seen investors pile back into banking stocks. However, there's still a lot of coronavirus-related uncertainty and if economic data continues to worsen a reversal could be on the cards.
This ETF tracking US regional banks performed well in May, but investors might want to use caution before piling in. The reason? On 10 June Fed Chair Jerome Powell said "We're not even thinking about thinking about raising [interest] rates." This saw the ETF drop 6.1% in value.
In May, Goldman Sachs analysts came out bullish on Brazil's equity market, saying “Brazilian equities are an ideal bounce-back candidate”. This saw the iShares MSCI Brazil ETF (EWZ) duly tick upwards as investors bought back into the country's recovery chances. However, investors should be mindful that both the political and economic situation are volatile in the South American country.
1 month: 8.31%
1 year: -34.02
Since inception: 113.03%
Top 3 holdings: Cia Vale Do Rio Doce SH, Itau Unibanco Holding Pref SA, B3 Brasil Bolsa Balcao SA
Returns as of 18 June 2020
Leveraged ETFs are complex financial instruments that carry significant risks. Certain leveraged ETFs are only considered appropriate for experienced traders.