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Most Loved and Hated ETFs of 2017

For the global stock market, 2017 was a banner year, having added $9 trillion in value thanks to booming economic growth in developed countries, strong corporate earnings, and central banks' go-slow approach to ease financial support. Notably, MSCI All-World Index gained nearly 22% last year (read: Top & Flop Zones of 2017 and Their ETFs).

Trump’s tax overhaul and a spending spree bolstered the optimism in the world’s largest economy while China, the world’s second-largest economy, is holding up well. Meanwhile, the Eurozone has been growing at the fastest pace in a decade. Further, investors' unstoppable enthusiasm for technology stocks as well as rebound in oil prices added to the global strength. Even fear of war in North Korea, political instability in Europe, Washington turmoil, Brexit concerns, stock overvaluation and bitcoin bubble failed to dampen the appeal for riskier assets.

As a result, 2017 was a record breaker in terms of ETF asset gathering. Overall, ETFs gathered about $475 billion capital, surpassing the previous record of $287.5 billion inflows in 2016.

U.S. Equity ETFs Dominate

U.S. equity ETFs led the way gathering $179.7 billion in assets. The Wall Street logged in the strongest year since 2017 with the S&P 500 gaining 19.4% and Dow Jones capping 25.1% gains, setting 71 all-time highs throughout the year. The bull trend is likely to continue this year given the passage of the Republican tax bill that will boost strong corporate profits and shareholders’ wealth. In particular, the new tax legislation will likely double corporate profits, which would propel the stocks higher.  

Given this, iShares Core S&P 500 ETF IVV was the most-loved ETF of 2017 with massive inflows of more than $30.2 billion. Vanguard S&P 500 ETF VOO and SPDR S&P 500 ETF Trust SPY also topped the top 10 list, accumulating $14.6 billion and $11 billion in capital last year. The trio of funds tracks the S&P 500 index but has a different fee structure. SPY charges 9 bps in annual fees while IVV and VOO cost just 4 bps — less than double the State Street counterpart. All the three funds have a Zacks ETF Rank #3 (Hold) (read: S&P 500 to Scale New Heights in 2018: Bet on These ETFs).

International ETFs Rock

International ETFs saw inflows of $160.2 billion in 2017 as investors fled American equities ETFs on political instability in the United States, lofty valuation as well as the prospects to end the cheap monetary policy era, especially in Europe. The European Central Bank (ECB) will start scaling back its massive €60 billion per month asset buying program to halve from January 2018 until at least September 2018. The tightening of policy will be in sync with the Fed and push the U.S. dollar lower and other currencies higher, indicating continued outperformance for the international bourses.

As such, iShares Core MSCI EAFE ETF IEFA pulled in nearly $20.9 billion in capital, followed by inflows of $17.5 billion for Vanguard FTSE Developed Markets ETF VEA) and $16.6 billion in iShares Core MSCI Emerging Markets ETF IEMG. While IEFA and VEA targets the developed market, IEMG offers exposure to emerging markets. The three funds have a Zacks ETF Rank #3 (read: International Markets Beat US in 2017: 3 Best Country ETFs).

Gold Mining ETFs Bled

Though gold price has risen 11.9%, the best annual performance since 2010, owing to a weak dollar, political tensions and receding concern over the impact of U.S. interest rate hikes, it failed to glitter gold mining ETFs. This is especially true as VanEck Vectors Gold Miners ETF GDX was the most unloved ETF of 2017 with outflows of nearly $3 billion. The fund tracks the NYSE Arca Gold Miners Index, which measures the performance of companies involved in the gold mining industry. It has an expense ratio of 0.51% (read: 10 ETF Volume Leaders of 2017).

Currency Hedged ETFs Lost Shine

Currency hedging strategies lost all its sheen due to declining greenback. The ICE dollar index, which measures the dollar against a basket of six other currencies, recorded an annual decline for the first time in five years, falling in double digits. As a result, investors shied away from currency hedged ETFs like WisdomTree Europe Hedged Equity Fund HEDJ and Deutsche X-trackers MSCI EAFE Hedged Equity ETF DBEF at pulled out $2.6 billion and $1.8 billion, respectively.

HEDJ offers exposure to a wide array of European stocks while at the same time provides hedge against any fall in the euro. It charges 58 bps in annual fees. On the other hand, DBEF targets the developed international stock market with no currency risk, charging investors 35 bps in annual fees. Both funds have a Zacks ETF Rank #3.

Mixed Bag for Bond ETFs

While iShares Core U.S. Aggregate Bond ETF AGG and iShares iBoxx $ Investment Grade Corporate Bond ETF LQD enjoyed strong investors’ acceptance with inflows of nearly $10.8 billion each as a result of strong economy backed by lower income tax, the appeal for the iShares iBoxx $ High Yield Corporate Bond ETF HYG dampened on higher rates. HYG currently has a Zack ETF Rank #4 (Sell) and shed $1.3 billion in its AUM while LQD has a Zacks ETF Rank #3 (read: An ETF Retirement Portfolio for 2018).

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SPDR-SP 500 TR (SPY): ETF Research Reports
ISHARS-IBX IG (LQD): ETF Research Reports
ISHARS-IBX HYCB (HYG): ETF Research Reports
VANECK-GOLD MNR (GDX): ETF Research Reports
VANGD-SP5 ETF (VOO): ETF Research Reports
WISDMTR-I HE FD (HEDJ): ETF Research Reports
ISHARS-SP500 (IVV): ETF Research Reports
ISHARS-CR US AG (AGG): ETF Research Reports
DEUTS-XT MS HDG (DBEF): ETF Research Reports
ISHARS-CR MS EA (IEFA): ETF Research Reports
ISHARS-CR MS EM (IEMG): ETF Research Reports
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