It’s exciting times in the ETF industry. For example, we might be headed for a photo finish in the ETF leader board. As of December 15, two ETFs stood above the rest. The Vanguard S&P 500 ETF (VOO) hoovered in $39.5 billion of new money in 2023, per VettaFi’s LOGICLY data.
Right behind VOO was the iShares Core S&P 500 ETF (IVV). The fund gathered $35.4 billion. Both ETFs have a miniscule fee of 0.03% and are supporting many advisors allocating for 2024. Meanwhile, the SPDR S&P 500 ETF (SPY) pulled in $13 billion. Its institutional appeal could help it quickly narrow the gap by yearend.
I’d hate to have a friendly wager on which ETF will win the race since I think it could come down to the final day of trading. However, I’m feeling more confident in the steak dinner bets I have with ETF industry colleagues. More on that in bit.
Smart Beta ETFs Offered an Alternative to Many
While broad market-cap-weighted ETFs were most popular, there were some smart beta ETFs gaining traction in 2023. For example, the iShares MSCI Quality ETF (QUAL) already added $11 billion of new money this year. This ETF owns companies with strong financial profiles like Eli Lilly and Visa.
In 2023, the Invesco S&P 500 Equal Weight ETF (RSP) gathered $10 billion. This ETF owns the same stocks as IVV, SPY, and VOO. However, RSP is much more diversified at the stock level. Apple and Microsoft shares represent less than 1% of assets after rebalances. RSP’s recent 12% total return significantly lags VOO’s 25% gain, but many advisors have looked for a less concentrated approach for the year ahead.
Meanwhile, the Invesco Russell 1000 Dynamic Multifactor ETF (OMFL) added $2.6 billion. It rotates exposure to factors — value, momentum, quality, low volatility and size — based on economic and market conditions. OMFL was recently up 19% for the year.
These are index-based ETFs, but we covered growing demand and supply of active equity ETFs in recent pieces.
A Spot Bitcoin Is Likely Coming After Year-End
Despite performance gains for many established ETFs, eyes in the ETF industry are also on what is likely to come. VettaFi and many of our pundit peers now expect the first spot bitcoin ETFs to be approved and come to market in early 2024. However, this is slightly behind schedule versus some expectations.
In June, I made a friendly wager for a steak dinner with Eric Balchunas, senior ETF analyst at Bloomberg and the co-host of the TV show ETF IQ. My belief was there would not be an approved spot ETF in 2023. To be fair, I expected it to take more time for the U.S. regulators to gain comfort.
Balchunas and his Bloomberg colleagues have been on top of this trend daily with updates as the sentiment has shifted. Indeed, updated filings with tickers and updated risk disclosures following recent meetings with the SEC provide greater confirmation that spot bitcoin ETFs could be imminent. However, I feel confident as the end of year approaches that it will be 2024, not 2023, when an approval occurs.
Gold ETFs Out of Favor Despite Rising in Value
Meanwhile, in January 2023, I appeared on the acclaimed podcast ETF Prime. Host Nate Geraci said he believed physical gold ETFs will regain their luster. Asked to put a number on the 2023 inflows into gold funds, Geraci settled on $5 billion, saying gold will perform admirably in 2023. I made another steak dinner bet, taking the under on that $5 billion mark with Geraci.
Gold ETFs were positioned to gain traction this year as the commodity ETFs on average climbed 8% as of mid-December. However, gold ETFs had just over $4 billion of net outflows, not inflows, for the year. The largest products, the SPDR Gold Shares ETF (GLD) and the iShares Gold Trust (IAU), were particularly out of favor.
I’m on vacation for much of the remainder of 2023. However, I think I’ll be eating very well in early 2024. However, I need to try to offset the pending steaks to look good enough to see hundreds of advisors in person at Exchange in February.
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