Not All Large ETFs Gathered Assets in 2017

By Todd Rosenbluth, CFRA

With approximately $135 billion of net inflows in the first quarter, it is easy to miss that not all ETFs faced the same demand. For an asset manager, diversification of index provider relationships and product offerings helps to counterbalance the inevitable winners and losers of assets within a period of time, according to CFRA. For example, in the first three months of 2017, BlackRock (BLK) benefitted as iShares ETFs connected to an MSCI (MSCI) or an S&P Dow Jones index collectively expanded their coffers, while funds tied to a FTSE Russell index bled assets.

Aided by $9.4 billion of new money in March, iShares ETFs licensing an MSCI index gathered $21 billion in the first quarter, the most of the 20 largest ETF provider/index provider partnerships tracked by First Bridge Data. Yet the strong summary inflows mask some of the trends happening at iShares in 2017.

iShares MSCI Core Emerging Markets (IEMG) and iShares Core MSCI EAFE (IEFA) gathered $6.6 billion and $4.0 billion in the first quarter, amid demand for international equity exposure, particularly lower cost products. Both IEMG and IEFA trade with penny bid/ask spreads and have modest net expense ratios of $0.14 and $0.08, respectively, providing support for investor asset allocation needs.

Meanwhile, iShares Edge MSCI Minimum Volatility USA (USMV) and iShares Edge MSCI Minimum Volatility Global (ACWV) had $640 million and $292 million of net outflows in the first quarter. Despite CFRA’s view that these ETFs have low risk considerations, investors rotated to other strategies.

iShares also benefitted from its partnership with the indices offered by the index division of S&P Global (SPGI 131 NR), as these ETFs incurred $17 billion of net inflows. iShares S&P 500 (IVV) was the most popular of the S&P 500 index ETFs, gathering $6.1 billion, ahead of the $4 billion for both Vanguard S&P 500 (VOO) and SPDR S&P 500 (SPY).

With $12 billion, Vanguard’s strongest first quarter inflows came from ETFs tied to a Bloomberg Barclays index. Despite bond yields falling after the Federal Reserve raised rates, short-term ETFs such as Vanguard Short-Term Corporate Bond Index Fund (VCSH) and Vanguard Short-Term Bond Index (BSV) were popular. The two ETFs, which each have an average duration below three years, pulled in a combined $4.1 billion.

In the first three months, Vanguard ETFs tied to a FTSE Russell index experienced $8.7 billion of net inflows, yet iShares ETFs connected to the same firm shed $463 million. Vanguard FTSE Developed Markets ETF (VEA), a peer to IEFA but with additional exposure to Canadian equities, gathered $4.3 billion. Meanwhile, iShares Russell 2000 (IWM), a peer to IJR but with a 15% lower weighted average market capitalization, had $1.4 billion in net outflows.

In addition to SPY, inflows into more narrowly focused Technology Select Sector SPDR (XLK) and SPDR S&P Regional Banking (KRE) helped the SSGA/S&P Dow Jones relationship gather $11 billion of new assets in the first quarter. Demand helped offset recent outflows for Materials Select Sector SPDR (XLB).

Outside of the three largest ETF providers, Schwab ETFs tied to S&P Dow Jones indices had a strong first quarter with $3 billion of new assets. Schwab US Large Cap ETF (SCHX) was the most popular of these with $720 million of net inflows. This ETF has a lower expense ratio than IVV, SPY and VOO, but also has a lower weighted average market capitalization due to additional and smaller companies not included in the S&P 500 index.

Todd Rosenbluth is Director of ETF & Mutual Fund Research at CFRA.

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