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Vanguard, iShares ETFs Stand Out in June, While Schwab Sees More Outflows

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Stock markets seemed to have stabilized in June. In fact, they had their best quarter since 1999 and rebounded 38% from their March lows.

Charles Schwab ETFs, though, had their third month of estimated outflows, according to Ben Johnson, director of ETF research for Morningstar. Meanwhile, Vanguard ETFs continued to see net inflows.

“[Schwab’s] new trend bucks a long record of steady net inflows into the firm’s lineup of ETFs, which went unbroken from their 2009 inception through April of this year,” Johnson says in his June recap.

“Meanwhile, market volatility continued to be a boon for firms like State Street and ProShares, whose ranges cater to a crowd that tends to use ETFs in a more tactical manner.”

Johnson told ThinkAdvisor that Schwab’s negative flows could be due to re-balancing within their own ETF model portfolios. “Schwab is by far the largest shareholder of the Schwab ETFs that have experienced the largest flows, both inflows and outflows, in recent months,” he said.

Vanguard ETFs topped the list with estimated net inflows of $25 billion, with BlackRock’s iShares gathering just under $20 billion. Schwab’s net outflows were around $1 billion.

The top-performing ETFs in the global market portfolio were Vanguard products: the Total World Stock ETF, up 3.07%; Total Bond Market ETF, up 0.67%; and Total International Bond ETF, up 0.54%.

Best-performing U.S. stock ETFs came from iShares: the Core S&P Total US Stock Market ETF, up 2.30%; Core S&P 500 ETF, up 1.89%; Core S&P Mid-Cap ETF, up 1.33%, and the Core S&P Small-Cap ETF, up 3.61%.

The top-performing international stock ETF was the iShares Core MSCI EAFE ETF, up 3.25%; while the best bond fund was iShares Core US Aggregate Bond ETF, up 0.66%.

Emerging market stocks outperformed both developed international and U.S. stocks, but many of the ETFs have lost ground to U.S. stocks in recent years, Johnson noted.

U.S. small-cap ETFs outperformed both large- and mid-cap ETFs in June, although small-caps still lag behind those groups over the five-year period, he said.

Other Winners and Losers

  • Although most bond market sectors recovered from first-quarter losses by the end of June, high-yield markets are “the notable exception,” Johnson writes. In May, the Federal Reserve began buying corporate bond ETFs as a way to backstop the bond market, purchasing 16 different ETFs with total market value of $6.8 billion by June 16.
  • Bond funds boomed with fixed income ETFs taking in a record $33.5 billion in net new flows. Over the past three months, fixed income ETFs have net flows of $84.5 billion, the largest three-month net flow on record.
  • Strategic-beta ETFs had a mixed showing vs. the broader stock market.
  • Value-oriented funds continued to struggle on a relative basis while momentum stocks have been “resilient.”
  • Physical gold ETFs continued to gain assets, with the SPDR Gold Shares seeing $3.2 billion in net new inflows in May, the seventh straight month of net new inflows.
  • The energy sector may have turned the corner, Johnson says, although as oil prices rallied, energy stocks stalled. Many energy ETFs still are trading at a deep discount, he says.
  • Some undervalued ETF areas include cannabis and oil service and equipment. Overweighted ETFs may be on the technology side, as those stocks have been on a tear due to the worldwide lockdown, which forces people to use technology even more, Johnson says.

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