ETF Growth Continues Despite Tough Market | ETF Trends

When you see the largest ETF, the SPDR S&P 500 ETF (SPY), down more than 20% year-to-date in late September, and with an industry-leading $23 billion of net outflows you might think investors are pulling back on ETF adoption. However, the three other S&P 500 Index-based ETFs more than offset SPY’s 2022 redemptions with a combined $59 billion of net inflows year-to-date through September 28. Meanwhile, many other more targeted U.S. equity funds gained traction. ETF usage remains strong in 2022, despite, and perhaps as a result of, the market challenges.

The Vanguard S&P 500 ETF (VOO) has led the charge with $37 billion added alone, but the iShares Core S&P 500 ETF (IVV) and the SPDR Portfolio S&P 500 ETF (SPLG) gathered $19 billion and $3.1 billion, respectively. The more popular trio of ETFs are more frequently used by advisors and end clients than SPY due to their lower expense ratios.

However, broad market ETFs were not the only U.S. equity ETFs to garner investor interest in the first quarter. Demand was particularly strong for equity income and value ETFs.

Many dividend ETFs, such as the Schwab US Dividend ETF (SCHD), the Vanguard High Dividend Yield ETF (VYM), and the iShares Core High Dividend ETF (HDV), pulled in more than $5 billion thus far in 2022 as investors sought alternatives in a rapidly rising interest rate environment. In addition, the JPMorgan Equity Premium Income ETF (JEPI) gathered nearly $9 billion despite launching in mid-2020, as its combination of lower-risk equities and income from options, proved to be highly enticing. Investors further sought out the more defensive approach of the Invesco S&P 500 Low Volatility ETF (SPLV). The $2.5 billion of net new money into SPLV helped push the ETF’s assets back to $10 billion. 

Meanwhile, value ETFs took in more money than their growth fund siblings. A higher interest rate environment is typically better for companies with strong current earnings rather than those with potentially strong future earnings. Companies typically found in value funds have strong current profitability not fully reflected in their share price.   

The Vanguard Value ETF (VTV) raked in $15 billion, more than double the impressive cash haul for the Vanguard Growth ETF (VUG). Similarly, the iShares S&P 500 Value ETF (IVE) added $2 billion of new money this year in contrast to the iShares S&P 500 Growth ETF (IVW), which had $1.5 billion of net outflows.  

Though some U.S. growth ETFs were modestly out of favor, investors have significantly pared back direct exposure to European equities this year. The JPMorgan BetaBuilders Europe ETF (BBEU) and the Vanguard FTSE Europe ETF (VGK) incurred $4.4 billion and $3.2 billion in redemptions, shrinking their asset bases to $3.1 billion and $12 billion, respectively.  Peer funds like the iShares Core MSCI Europe ETF (IEUR) and the SPDR EURO STOXX 50 ETF (FEZ) also had net outflows.

Investors still gained exposure to European equities through more diversified international equity ETFs like Vanguard FTSE Developed Markets ETF (VEA) and the iShares Core MSCI EAFE ETF (IEFA), which gathered a combined $10 billion thus far in 2022. 

Despite market challenges, equity ETFs remain a go-to investment vehicle for many advisors and end clients to support strategic and tactical portfolios. It’s going to take more than a bear market to change that.

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