The S&P 500 exchange traded funds have been a mainstay in many retail investor, financial advisor and and institutional investment portfolios, but ETF flows reveal that traders are growing increasingly more selective when picking out the right tool.
The SPDR S&P 500 ETF (NYSEArca: SPY), the world’s largest ETF by assets, is losing ground to rivals managed by BlackRock and Vanguard, report Joe Rennison and Robin Wigglesworth for the Financial Times.
Investors have yanked about $10 billion out of SPY while its chief competitors, the iShares Core S&P 500 ETF (NYSEArca: IVV) and Vanguard 500 Index (NYSEArca: VOO), which also track the S&P 500, have attracted $14 billion and $7 billion in net inflows year-to-date, respectively.
SPY’s current woes are partly attributed to the shift in investment sentiment. Specifically, large asset managers, who have been known to use SPY for its robust liquidity, are switching their money from U.S. equities into Europe where a combination of diminished political risk and improving growth expectations are enticing greater investment interest. For example, at the recent SALT conference in Las Vegas, a number of hedge fund managers have extolled the potential opportunities in European assets over U.S. markets.
On the other hand, the ongoing uncertainty surrounding President Donald Trump’s ability to deliver on a number of pro-growth policies, such as deregulation, tax cuts and fiscal spending, have diminished the appeal of U.S. equities.
“Flows are generally not related to expense ratios, and more to do with the market environment in the US,” Matthew Bartoloni, head of SPDR research at State Street Global Advisors, told the Financial Times. “Since March the Trump administration has been more about the art of damage limitation than the art of the deal.”
So far this year, European stocks have outperformed U.S. markets.
Meanwhile, investors with longer time horizons have increasingly focused on the cost of their investments as a way to improve total return. Consequently, the cheaper IVV and VOO may continue to maintain inflows from smaller money mangers and retail investors looking to grow wealth for the long haul.
“Fee differentials are important,” Robert Smith at Sage Advisory, an investment adviser, told the Financial Times. “For us it is a question of what is the least expensive with the highest degree of tracking efficiency.”
Institutional investors, though, put more emphasis on liquidity or the ability to buy and sell a security during periods of extreme stress in the markets, which means that many have utilized SPY over IVV and VOO. Over the past 30 days, SPY’s average daily trading volumes were 20 times those of IVV and 38 times those of VOO.
For more information on asset flows, visit our ETF performance reports category.