Daily ETF Watch: May’s Biggest Outflows

May 23, 2014

A look at the biggest fund redemptions in a choppy month.

The S&P 500 Index reached new highs in May, but the rising tide did not lift all ETF boats. In fact, the world’s biggest exchange-traded fund, the SPDR S&P 500 SPDR (SPY | A-97), has led all other funds in outflows so far this month.

Although the S&P 500 Index closed at a record high on May 13 of 1,897.45, it’s taken a choppy route. The index’s performance has been hampered by weak economic data in the U.S., much of it blamed on the severe winter weather, and slowing economic output in China as well tensions in Ukraine.

In turn, investors have spurned small-caps, tech and financials in favor of defensive equities such as utilities and safer bond markets. SPY has suffered net outflows around $7 billion, month-to-date, according to data compiled by ETF.com Analytics.

SPY seems to be losing assets relative to some competing S&P 500 ETFs this year, according to Matt Hougan, president of ETF.com, because it’s structured in a way that does not allow it to reinvest its dividends over the course of each quarter.

“Instead, it simply holds them in cash. As a result, it has a small but persistent cash drag,” he wrote in a recent blog.

That means when the market is rising, SPY will tend to underperform peers like the iShares Core S&P 500 ETF (IVV | A-97) or the Vanguard S&P 500 ETF (VOO | A-96). For example, SPY has gained 3.1 percent year-to-date, while both IVV and VOO are up 3.2 percent.

In terms of year-to-date flows, SPY has lost $24 billion in assets, while IVV and VOO have pulled in about $3 billion and $776 million, respectively, according to data compiled by ETF.com Analytics.

In May, in comparison to SPY’s $7 billion asset-bleed, IVV has lost $1.1 billion, while Vanguard’s VOO has pulled in $368 million.

SPY_Vs._IVV_Vs._VOO_May2014

Chart courtesy of StockCharts.com

The iShares Russell 2000 ETF (IWM | A-83) is the second-biggest money loser in May, redeeming $2.4 billion, followed by the Financial Select Sector SPDR Fund (XLF | A-93), losing $867 million.

The Technology Select Sector SPDR Fund (XLK | A-77) and the PowerShares QQQ ETF (QQQ | A-50) rounded out the top five money losers in May, redeeming $726 million and $590 million, respectively.

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