Equity ETFs stretch their winning streak to three quarters in a row

Despite hitting multiple record highs and triple-digit lows over the three months, the markets were generally in a sideways pattern during second quarter 2015. While the Russell 2000 and the NASDAQ Composite managed to break into record territory in mid-June, advances to new highs were generally just at the margin. However, at June month-end concerns about the Greek debt drama, looming U.S. interest rate increases, Puerto Rico's inability to service its public debt, and China's recent market slide weighed heavily on investors. A positive finish for equities on the last trading day of June wasn't enough to offset the Greek debt-inspired meltdown from the prior day, and many of the major indices witnessed their first quarterly loss in ten, with the Dow Jones Industrial Average and the S&P 500 losing 0.88% and 0.23%, respectively, for Q2, while the NASDAQ Composite gained 1.75%. The average equity exchange-traded fund (ETF) (+0.05%) just managed to stay in the black for Q2, stretching the winning streak to three quarters in a row. During Q2 2015 the dollar weakened against the euro (-3.67%) and the pound (-5.59%) but gained against the yen (+1.83%). Commodity prices were mixed, with near-month crude oil prices gaining 24.94% to close the quarter at $59.47/barrel and with gold declining 0.98% to end the quarter at $1,171.50/ounce.

Equity ETFs ranked by quarterly returns

ETF investors (authorized participants, or APs) were net purchasers of long-term assets for Q2, injecting $24.8 billion into equity ETFs while also being net purchasers of taxable fixed income ETFs (+$1.0 billion) and municipal debt ETFs (+$0.6 billion). Despite global concerns, for the second consecutive quarter APs were net purchasers of nondomestic equity ETFs, injecting $35.8 billion into the subgroup, while being net redeemers of domestic equity ETFs (-$11.0 billion). Lipper's U.S. Diversified Equity ETFs macro-classification—handing back some $9.4 billion—witnessed the largest net redemptions of the equity macro-classifications during the quarter. Developed International Markets ETFs—taking in $30.7 billion for Q2—was the top attractor of net new money, followed at a distance by Emerging Markets ETFs (+$5.6 billion) and Mid-Cap ETFs (+$3.8 billion).

Equity ETFs with the largest outflows

Despite the on-again, off-again nature of the Greek debt drama, a volatile Chinese market, and a resurgence of news surrounding the possible default by Puerto Rico of its sovereign debt, the Emerging Markets ETFs macro-group (+1.77%) moved toward the top of the return charts for Q2, bettered only by Commodities ETFs (+2.41%). Despite its late-month meltdown in June, Lipper's China Region ETFs classification (+7.36%) still managed to stay in strong positive territory for the quarter—outpaced only by Commodities Energy ETFs (+10.09%).

Equity ETFs with the largest inflows

Three of the five top individual equity ETF performers were housed in the China Region ETFs classification: iShares MSCI China Small-Cap ETF (ECNS) posted the best quarterly return of the universe (+22.13%), followed by Deutsche X-trackers Harvest CSI 500 China A-Shares Small-Cap ETF (ASHS) (+20.58%), and KraneShares CSI China Internet ETF (KWEB) (+19.31%). Rounding out the top-five list were ALPS Medical Breakthroughs ETF (SBIO, housed in Lipper's Health/Biotechnology ETFs classification) and United States Gasoline Fund LP (UGA, warehoused in Lipper's Commodities Energy ETFs classification), returning 18.86% and 18.41%, respectively.

Newly-launched equity ETFs ranked by Q2 2015 daily trading volume

With an increased expectation of a rise in near-term interest rates, a decline in demand from China, and the Reserve Bank of India's revising its inflation forecast higher, it was little wonder interest rate-sensitive, commodities, and a few emerging market country securities were pummeled during the quarter. Real Estate ETFs (-9.52%), Global Real Estate ETFs (-5.46%), and India Region ETFs (-5.40%) posted the lowest quarterly returns among the equity ETF classifications. Three of the five worst performing individual ETFs were invested in Indonesia, which suffered a slowdown in economic growth during Q2, placing a pall over investor appetite. At the bottom of the heap was ProShares VIX Short-Term Futures ETF (VIXY, warehoused in Lipper's Specialty/Miscellaneous ETFs classification), losing 20.87% for the quarter. Bettering VIXY somewhat were Market Vectors Indonesia Small-Cap ETF (IDXJ, -16.45%, housed in Lipper's Emerging Markets ETFs classification), iShares MSCI Indonesia ETF (EIDO, -14.11%), Market Vectors Coal ETF (KOL, -13.82%), and Market Vectors Indonesia Index ETF (IDX, -13.31%).

One-year anniversary equity ETFs ranked by Q2 2015 daily trading volume

As of June 30. Excludes leveraged and inverse funds, and exchange traded notes. *Most recently reported net prospectus expense ratio. Source: Lipper, a Thomson Reuters company