Exchange traded fund investors turned risk-on over July, putting money into corporate debt and overseas markets, on rising bullish sentiment.
The most popular ETF play over the past month was still iShares Core S&P 500 ETF (NYSEARCA: IVV), which attracted $3.8 billion in net inflows, according to XTF data. The SPDR S&P 500 ETF (NYSEARCA: SPY) topped the list with $1.0 billion in flows as well.
ETF investors also threw money into overseas markets where valuations appear cheaper relative to the loftier prices in the U.S. – U.S. markets are trading at forward price-to-earnings of around 18 times, compared to historical averages of 15 times.
The second most popular play of the past month was the iShares Core MSCI EAFE ETF (NYSEArca: IEFA), bringing in $2.9 billion in net inflows. Additionally, the Vanguard FTSE Developed Markets ETF (NYSEArca: VEA) added $1.08 billion and the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) saw $838.1 million in inflows as well.
With the Federal Reserve standing pat on interest rates and remaining vague on its bond tapering plans, yields on U.S. Treasuries dipped in the latter half of July, which helped fuel greater demand for alternative income-generating assets in a persistently low-yield environment. The additional risk-on sentiment toward corporate America in light of the rosy second quarter earnings season also helped lift the outlook on credit markets.
The iShares iBoxx $ Investment Grade Corporate Bond ETF (NYESArca: LQD) experienced $1.6 billion in net inflows while the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) attracted $1.3 billion and the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) brought in $814.3 million. Additionally, the broad iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG) saw $927.8 million in inflows.
The Financial Select Sector SPDR (NYSEArca: XLF) also brought in a hefty $1.2 billion as the sector strengthened over the past month. Some strategists argue that the financial sector may be a good area to look at this time around, given the potential for growth in a rising rate environment, along with potential tax and regulatory changes under the Donald Trump administration.
On the other hand, the SPDR Gold Shares (NYSEArca: GLD) was the least popular ETF play of July as investors yanked $2.4 billion out of the precious metal ETF over the past month, which suggests that traders may be more optimistic over riskier assets and less inclined to stick into a safe-haven hedge with markets pushing higher.