Recession is in the air? Capital flows into these 5 ETFs!

To the Moo wrote a column · Apr 27, 2023 15:05

A "mild" downturn is coming?

The recession alarms have been sounding lately due to bank failures, stubborn inflation, rising interest rates and general stock market volatility.

Minutes from a recent Federal Open Markets Committee (FOMC) meeting predict a "mild recession" later in the year.

Investors expect a second-straight quarter of decline in profits from U.S. companies. Per the Zacks Earnings Trends report, total S&P 500 earnings are expected to decline 8.8% from the same period last year on 2.1% higher revenues. This would follow the 5.4% decline in Q4 2022 on 5.9% higher revenues.

Capital inflows into ETFs!

The stock market volatility has resulted in solid inflows into ETFs.

Overall, ETFs pulled in US$2.4 billion in capital for the last week (ending Apr 21). International equity led the way higher with US$915.3 million inflows, closely followed by US$570.6 million in international fixed-income ETFs and US$440 million in U.S. equity ETFs, per etf.com.This has brought total assets under management to US$6.97 trillion.

As such, $iShares 20+ Year Treasury Bond ETF (TLT.US)$, $Vanguard S&P 500 ETF (VOO.US)$, $iShares Core S&P 500 ETF (IVV.US)$, $Financial Select Sector SPDR Fund (XLF.US)$ and $Consumer Staples Select Sector SPDR Fund (XLP.US)$ dominated the top creation list last week.

Let's take a look at these 5 ETFs！

iShares 20+ Year Treasury Bond ETF (TLT)

iShares 20+ Year Treasury Bond ETF is the top asset creator, pulling in US$1.1 billion in capital. It provides exposure to long-term Treasury bonds by tracking the ICE U.S. Treasury 20+ Year Bond Index.

TLT is one of the most popular and liquid ETFs in the bond space，with AUM of US$35.3 billion and an average daily volume of 21.5 million shares. iShares 20+ Year Treasury Bond ETF has a Zacks ETF Rank #4 (Sell) with a high-risk outlook.

With the pandemic causing widespread financial upheaval across various sectors globally, many investors seek stability through bonds that are backed by governments’ powerful machinery but offer moderate yields without extreme volatility in returns.

In conclusion, TLT ETF presents an ideal investment opportunity for investors looking for a reliable source of revenue through consistent dividends while continuing exposure to the U.S Treasury bond market’s broad-based performance over an extended period without unnecessary risk-taking compared to other investment options such as equities or commodities.

TLT rose 7.10% since Jan 2023.

Recession is in the air? Capital flows into these 5 ETFs!

Vanguard S&P 500 ETF (VOO)

Vanguard S&P 500 ETF gathered US$863.1 million in its asset base. It tracks the S&P 500 Index, considered the single best gauge of overall domestic market performance.

This ETF has the heaviest allocation to the Information Technology sector--about 25.80% of the portfolio. Healthcare and Financials round out the top three.

Looking at individual holdings, $Apple (AAPL.US)$accounts for about 6.53% of total assets, followed by $Microsoft (MSFT.US)$and $Amazon (AMZN.US)$.

Considered a more stable option, large cap companies boast more predictable cash flows and are less volatile than their mid and small cap counterparts.

VOO has AUM of US$289.5 billion and a Zacks ETF Rank #2 (Buy) with a medium-risk outlook.

VOO rose 5.80% since Jan 2023.

iShares Core S&P 500 ETF (IVV)

iShares Core S&P 500 ETF has accumulated US$850 million in capital. It tracks the S&P 500 Index and holds 503 stocks in its basket.

This ETF has the heaviest allocation to the Information Technology sector--about 26.10% of the portfolio. Healthcare and Financials round out the top three.

IVV has AUM of US$308.7 billion and a Zacks ETF Rank #2 with a medium-risk outlook.

IVV rose 6.16% since Jan 2023.

VOO and IVV are both following S&P 500. This index includes stocks from 500 of the largest and strongest companies in the U.S., across a wide variety of industries. That level of diversification can substantially lower your risk, because if a few stocks (or even an entire sector) are hit hard during a recession, it won't sink your entire portfolio.

Financial Select Sector SPDR Fund (XLF)

The ultra-popular Financial Select Sector SPDR Fund ETF has gathered US$705.1 million in its asset base, following the Financial Select Sector Index.

It seeks to provide exposure to 73 companies in diversified financial services, insurance, banks, capital markets, mortgage real estate investment trusts, consumer finance, and thrifts and mortgage finance industries.

This ETF has the heaviest allocation in the Financials sector--about 100% of the portfolio.

Looking at individual holdings, $Berkshire Hathaway-B (BRK.B.US)$accounts for about 14.57% of total assets, followed by $JPMorgan (JPM.US)$ and $Bank of America (BAC.US)$.

Callie Cox, U.S. investment analyst at eToro, says investors should also take advantage of a potential recession in 2023 and prepare their portfolios for the light at the end of the tunnel in 2024 and beyond.

"Markets look ahead, and that means you could benefit from looking ahead to the next cycle when it comes to your portfolio," Cox says. "Think about what sectors do well early on in an economic recovery: financials, real estate and technology."

XLF carries a Zacks ETF Rank #1 (Strong Buy) with a medium-risk outlook.

XLF fell 5.21% since Jan 2023.

Consumer Staples Select Sector SPDR Fund (XLP)

Consumer Staples Select Sector SPDR Fund saw inflows of US$654.3 million last week, following the Consumer Staples Select Sector Index.

It offers exposre to companies primarily involved in the development and production of consumer products that cover food and drug retailing, beverages, food products, tobacco, household products, and personal products.

This ETF has heaviest allocation in the Consumer Staples sector--about 100% of the portfolio. It is considered a defensive industry and may play its part in helping to withstand a recession.

Looking at individual holdings, $Procter & Gamble (PG.US)$accounts for about 15.20% of total assets, followed by $PepsiCo (PEP.US)$ and $Coca-Cola (KO.US)$. These products see steady demand even during an economic downturn due to their low level of correlation with economic cycles.

XLP is the most popular consumer staples ETF . It has a Zacks ETF Rank #2 with a medium-risk outlook.

XLP rose 2.68% since Jan 2023.