With $328 billion of net inflows, 2019 will go down as the second-strongest year for the exchange-traded product industry.
However, while hundreds of new products came to market from established and upstart firms alike, tapping into a pie that continues to expand, exchange-traded funds and exchange-traded note flows remain concentrated in a small number of firms.
Two companies in particular—BlackRock and Vanguard—pulled in 68% of the new money last year, according to First Bridge Data, a CFRA company, even as 13 other firms pulled in more than $2 billion. Let’s review the league table and what was popular for these fund sponsors.
BlackRock (iShares) and Vanguard are at the platinum level, as they remain the top two providers, with a combined 65% of the $4.4 trillion market share. While iShares’ $118 billion of net inflows was higher than Vanguard’s $105 billion, Vanguard’s 32% share of new money gathered was higher than its overall 26% market share. Furthermore, these two heavyweights had the 15 ETFs with the highest net inflows in 2019.
|Sponsor 2019 Net Flows ($M)|
|Platinum Level Flows|
|Gold Level Flows|
|State Street (SPDR)||14,149|
|Silver Level Flows||Level Flows|
Source: First Bridge Data, a CFRA company; data as of December 31, 2019.
For Vanguard, the market-cap-weighted U.S. equity-focused Vanguard Total Stock Market Index ETF (VTI) and Vanguard S&P 500 ETF (VOO) were the firm’s biggest gainers. VTI provides all-cap exposure, while VOO is currently the cheapest of the S&P 500 Index based ETFs, charging just a 0.03% expense ratio.
USMV is a smart beta fund and is the CFRA Focus ETF for January. The fund focuses on lower-risk U.S. stocks, but provides strong sector diversification. Its demand was particularly impressive given how strong equity returns were in 2019.
For IEFA, the high inflows in 2019 largely came from investors continuing to move away from BlackRock’s more expensive and all-cap developed international equity ETF, the iShares MSCI EAFE ETF (EFA). IEFA’s 0.07% expense ratio is less than 25% of the fee for EFA, which contributed to EFA leading the industry in net outflows in 2019.
Both BlackRock and Vanguard also experienced high demand for their bond ETF lineup in 2019, with numerous such funds among the industry leaders.
There were five firms that gathered between $10 billion and $25 billion of net inflows in 2019. Although these firms’ combined inflows still would have lagged behind that of BlackRock and Vanguard, the year still showed an admirable cash haul.
Leading the pack at the gold level was Schwab, which primarily offers a low-cost suite of market-cap-weighted ETFs similar to those of Vanguard and BlackRock. The Schwab International Equity ETF (SCHF) was the firm’s most popular product in 2019, and has the 36th highest net inflows across the industry, according to First Bridge Data. SCHF is a peer of IEFA and charges a slightly lower expense ratio of 0.06%. Schwab gathered $23 billion of net inflows.
State Street Global Advisors came in fourth, with $14 billion of net inflows, although its most popular product was quite different from that of its peers. The SPDR Gold Trust (GLD), the largest commodity ETF, pulled in more than $5 billion in 2019. Meanwhile, the SPDR S&P 500 ETF Trust (SPY) had net outflows.
Invesco has expanded its smart beta suite in recent years through acquisitions to include the Invesco S&P 500 Equal Weight ETF (RSP) and others. However, Invesco’s most popular ETF in 2019 was the Invesco QQQ Trust (QQQ), which holds hefty weights in the largest U.S. communications services, consumer discretionary and information technology stocks. Invesco added $13 billion in new money.
Rounding out the gold level are First Trust and JPMorgan Chase. First Trust is the more established provider, and tends to charge a premium fee relative to peers for its ETFs. Indeed, the firm’s most popular fund in 2019 was the First Trust Value Line Dividend Index Fund (FVD), which charges a 0.70% expense ratio, yet gathered $4 billion in 2019.
In contrast, J.P. Morgan has been in the ETF market for only a few years, and has used its scale to bring lower fees. For example, the JPMorgan Ultra-Short Income ETF (JPST), a short-term bond fund that was in demand in 2019, charges a 0.18% expense ratio. Meanwhile, the firm offers a U.S. equity ETF, the JPMorgan BetaBuilders U.S. Equity ETF (BBUS), for just 0.02%.
There were eight additional firms to gather between $2 billion and $6 billion of net inflows in 2019: DWS, Fidelity, Franklin Templeton, Global X, PIMCO, ProShares and Velocity Shares. For these firms, 2019 could also be viewed as a successful one, and these names have some compelling products, according to our research, even as they remain far behind the largest ETF providers.
Those who know of our ETF research will realize we believe past performance, whether focused on returns or fund flows, is not the sole reason to focus on a product. Our forward-looking research provides a review of what’s inside the portfolio. To learn more about what’s ahead for the ETFs cited in this piece and more than 1,500 others, check out MarketScope Advisor.
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