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Asset Report of September: Small Caps Rule

Sanghamitra Saha
Updated
Wall Street finished in the green reversing its five-day negative trend on Thursday following news that United States and China have ramped up their efforts to resolve lingering trade disputes

The month of September saw investors being equally enthusiastic about stocks and bonds. While upbeat global economic readings boosted equities, North Korea’s nuke-related tensions boosted investors’ interests in treasuries too. Chances of the extension of the OPEC output cut deal and improvement in the demand scenario also kept the energy space steady. Against this backdrop, let’s find out the top gainers and losers in terms of asset growth in September (source: etf.com).

Small-Caps Bounced Back

U.S. GDP expanded 3.1% year over year in the second quarter and represented the fastest pace since the first quarter of 2015. Plus, President Trump unveiled the much-awaited tax reform, which brightened hopes of stellar activity in the domestic economy (read: Three Reasons to Bet on Small Cap ETFs Now).

Since small-cap stocks perform better in a trending economy, investors showered their love on the related ETFs. iShares Russell 2000 ETF IWM saw inflows of $2.46 billion of assets in the month and topped the list of highest grossers. iShares Core S&P Small-Cap ETF IJR too added about $902.4 million in assets.

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Investors Love for Safe Havens

As North Korean tensions flared up in September, investors rushed to safe havens. Following North Korea’s most powerful nuclear test on Sep 3, the 15-member Security Council voted on a U.S.-drafted resolution and slammed the rogue nation with a new round of sanctions on Sep 18.

The relation between Trump and North Korea soured so much that North Korea's foreign minister indicated in late September that a recent tweet by Trump has been considered “as a declaration of war on North Korea” and that Pyongyang will not step behind to take counter actions, as per Reuters. If this was not enough, it was reported that North Korea had been fortifying defense on its east coast after U.S. Air Force B-1B bombers were flown to the Korean peninsula.

All these boosted the appeal for safe-haven assets like U.S. treasuries and gold. iShares 20+ Year Treasury Bond ETF TLT added about $2.45 billion in assets while SPDR Gold Trust GLD hauled in about $2.04 billion in assets.

Fed Gave Life to Financials

The Fed turned super-hawkish in its September meeting as the central bank surprised the investment world by announcing that it will start winding down its mammoth $4.5-trillion balance sheet of Treasury securities and mortgage-backed assets from October (read: Best ETF Strategies for a Hawkish Fed).

Such hawkish hints pushed up bond yields and favored the financial stocks in the month. In response, Financial Select Sector SPDR ETF XLF absorbed $1.19 billion of investors’ money.

Nasdaq Falls Out of Favor

The U.S. technology sector stumbled in late September. A safe-haven rally on renewed North Korea’s war-related tensions and overvaluation concerns probably hit the space hard, though it recovered soon. Probably this is why, the tech-heavy PowerShares QQQ ETF QQQ shed about $824.4 million in assets in the month.

Germany in Tight Spot

Angela Merkel’s right-wing Alternative for Germany (AfD) party won 1-in-8 votes in the German election in late September. However, her conservative CDU/CSU bloc witnessed “its lowest support in almost 70 years.” This indicated receding political power of Merkel and raised questions about the fate of Germany’s superiority in the Eurozone as well as in the investing world. This slight uncertainty cost iShares MSCI Germany Index Fund EWG about $361.6 million in assets in September.

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