Quick Turns

Monday, March 27, 2017 - Stocks suffered their worst weekly decline since the November presidential election as political turmoil caused investors to recalibrate their expectations of President Trump's ability to pass its pro-growth agenda through Congress. This week's planned health-care bill vote was widely viewed as a key litmus test that would have far-reaching implications for the viability of Trump's agenda. Successful passage of health care legislation would enable Trump to move on to his remaining signature campaign items, such as tax cuts and deregulation. These market-friendly policy proposals have fueled the post-election rally and it is no surprise, therefore, that a selloff was precipitated after GOP lawmakers balked at an attempt to push the bill through Congress. Against this tumultuous backdrop, the S&P 500, Dow Jones Industrial Average and NASDAQ 100 shed 1.4%, 1.5%, and 1.2% respectively.

The unraveling of the Trump reflation trade helped snap the 19 consecutive weeks of inflows into U.S. listed ETFs since the election. According to our fund flow report, U.S. listed ETFs registered nearly $415 million in outflows this week as investor enthusiasm for equities began to wane. Perceived beneficiaries of Trump's pro-growth agenda, such as financials and small caps, were hit particularly hard, with SPDR S&P 500 ETF (SPY), Vanguard Small-Cap Index Fund (VB), and Financial Select SPDR Fund (XLF) posting redemptions of $3.9 billion, $727 million, and $614 million respectively.

Our Quant Movers list also captures this reversal of fortune for the Trump rally beneficiaries. Manufacturers, Small Caps and other domestically oriented sectors are well represented on this week's top Quant losers list, with funds such as VanEck Vectors Steel Index Fund (SLX), FlexShares STOXX Global Broad Infrastructure Index Fund (NFRA), and Schwab U.S. Small-Cap ETF (SCHA) all suffering large declines in their Quant scores. Unsurprisingly, our Quant losers list also features several financial funds, like iShares US Financial Services ETF (IYG) and iShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI). In addition this week's market volatility, IAI was likely also hurt by Monday afternoon's botched software update at NYSE Arca, the largest listing venue for U.S. ETFs, which prevented hundreds of securities from successfully completing their closing auctions. NYSE Arca is the primary listing place for over 1,500 ETFs, including some of the most heavily traded securities in the world like SPDR S&P 500 ETF (SPY), Vanguard Total Stock Market ETF (VTI), SPDR Gold Trust (GLD). Given the growing prominence of ETFs and electronic trading and previous high profile trading glitches, this incident served as a reminder of some sources of fragility in a still nascent ETF marketplace.

To help prepare for a potential unraveling of the Trump trade, it's worthwhile to peruse our weekly Select List, which highlights the 5 most highly-rated ETFs by Sector, Geographic Region and Strategy as ranked by the ETFG Quant model to see which funds may offer the potential to weather a changing market environment.

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