ETFs saw record inflows of $247 billion in the first half of the year, pushing assets under management to $2.971 trillion and concluding almost 16 consecutive months of positive inflows.
The most money has been channelled towards plain vanilla, large and liquid funds that track US stock markets such as the S&P 500 and the Russell 2000, as well as some international and emerging market funds. Yet investors are picking and choosing these funds depending on small differences in price.
Choosing ETFs based on fees
The iShares Core S&P 500 ETF (IVV) has seen inflows of $16.8 billion to the end of June, while the SPDR S&P 500 ETF (SPY) has seen outflows of $5.6 billion over the same period. The difference seems to come down to a minute difference in fees, of 0.04% for the former and 0.09% for the latter.
Performance has been healthy for both funds. SPY (below) has lost more than $9 billion this year to 5 July, found TrackInsight.
IVV, on the other hand, has seen inflows over the same period of more than $16 billion. Yet both funds gained more than 9% in USD terms since 1 January.
Smart beta, however, has seen lots of media attention and hype but that has not necessarily translated to investor capital.
“You can’t go in a subway without seeing an ad for a smart beta fund, but not a single smart beta has cracked the top 75 in terms of flows,” Dave Nadig, CEO of ETF.com, told CNBC.
Another sector that has started to wane is technology. Last month the main NASDAQ 100 ETF (QQQ) from PowerShares (below) saw outflows. Gold miners also suffered.
In terms of the asset classes that saw the highest increases of assets under management, international fixed income was top at 21.4% so far this year, followed by international equity at 13.7%, domestic fixed income at 12.3% and US equity at 4.8%.
Certain ETFs and certain providers continue to dominate
While assets rise, the ETF market remains very concentrated.
There are more than 70 ETF providers yet the main four – BlackRock, Vanguard, State Street and Invesco PowerShares – still control around 88% of assets, which totals more than $2 trillion in an almost $3 trillion market, ETF.com data found.
While these companies get bigger, so do their funds. Most of the assets are in the top 100 ETFs, with the top 30 funds owning half of the total assets and the top 100 claiming three quarters.
When questioned if too much money is going into ETFs, Nadig said: “[…] ETFs only own 6 percent of U.S. equities. That’s a pretty small number compared to, say, 401(k) plans.”
