Key Takeaways

• U.S. factor and thematic ETFs gathered approximately $10 billion year to date through Sept. 8, according to CFRA’s First Bridge ETF data. Investors preferred ESG products and risk-on ones, such as the iShares MSCI USA Value Factor ETF (VLUE) and the iShares MSCI USA Momentum Factor ETF (MTUM).
• In contrast, investors redeemed a combined $3.7 billion from the lower-risk iShares MSCI USA Min Vol Factor ETF (USMV) and the Invesco S&P 500 Low Volatility ETF (SPLV) this year.
• U.S. dividend and fundamental ETFs incurred more than $4 billion in net redemptions thus far in 2020. The iShares Select Dividend ETF (DVY) and the SPDR S&P Dividend  ETF (SDY) were the least popular of these products, hurt in part by poor performance.
• iShares pulled in more than $10 billion into U.S. dividend & fundamental and factor & thematic ETFs this year, while peer Invesco has incurred over $6 billion of net redemptions.

Fundamental Context

U.S. dividend & fundamental ETFs have incurred redemptions. CFRA breaks the U.S. equity ETF category into six subcategories. Broad market and size ETFs, such as those tracking the S&P 500 Index and other market-cap-weighted indices, pulled in $38 billion of net inflows year to date through Sept. 8, according to CFRA’s First Bridge ETF database. However, dividend and fundamental products had $4.1 billion of net outflows as the impact of COVID-19 put dividends under pressure.

A second alternatively weighted factor and thematic ETF subcategory pulled in $9.8 billion in new money this year, aided by value and momentum factor ETFs, even as many popular lower volatility ETFs incurred sizable redemptions. These two subcategories, along with U.S. style ETFs ($7.8 billion of net inflows), consist of funds that commonly are referred to as smart beta.

Environmental, social and governance (ESG) and higher risk factor ETFs have been popular in 2020. In a thematic ETF article on Aug. 10 titled, “Are the S&P’s Top 5 Stocks Part of ESG ETFs?”, we highlighted the growing trend toward ESG thematic ETFs.

These values-oriented funds have remained popular into early September. The iShares ESG Aware MSCI USA ETF (ESGU) gathered $6.2 billion of new money thus far in 2020, while the Vanguard ESG U.S. Stock ETF (ESGV) and the Xtrackers MSCI U.S.A. ESG Leaders Equity ETF (USSG) gathered $855 million and $708 million year to date, respectively, through Sept. 8.

Single-Factor ETFs

In addition, some more narrowly focused single-factor ETFs gathered significant new money this year. For example, MTUM had approximately $800 million of net inflows, likely aided by its 13% gain and exposure to higher-growth information technology (32% of assets) and health care (29%) stocks.

Yet VLUE pulled in approximately $2.9 billion, despite a disappointing 16% decline in performance. That ETF is more diversified at the sector level than MTUM, with 24% in information technology and 13% in health care, through stocks like Intel (INTC) and CVS Health (CVS) provide the exposure, not recent strong performers such as Apple (AAPL) and Tesla (TSLA).

(Use our stock finder tool to find an ETF’s allocation to a certain stock.)

VLUE was not the only popular alternatively weighted ETF that has incurred performance losses in 2020. The SPDR Portfolio S&P 500 High Dividend ETF (SPYD) added nearly $500 million in new assets this year, despite plummeting 26% in value. Fellow dividend ETFs iShares Core Dividend Growth ETF (DGRO) and Schwab US Dividend ETF (SCHD) gathered approximately $1.8 billion and $1.2 billion of net inflows, respectively, despite modest 3.8% and 1.6% losses.  

Largest Inflows Among US Dividend & Fundamental And Factor & Thematic Index ETFs

Source: CFRA’s First Bridge Database, as of 9/8/2020

Redemptions

Not all dividend ETFs gathered money despite losses. Indeed, the two largest redemptions among U.S. dividend & fundamental and factor & thematic ETFs were dividend ETFs that had double-digit 2020 losses. SDY and DVY each had $2.0 billion in redemptions, shrinking to $15 billion and $13 billion, respectively. Both have relatively high exposure to financials and utilities stocks.

Largest Outflows Among US Dividend & Fundamental And Factor & Thematic Index ETFs

Source: CFRA’s First Bridge Database, as of 9/8/2020

Lower volatility ETFs have been out of favor this year. Even though the market volatility has remained high this year, large funds positioned to protect the downside have lagged and investors have been redeeming shares. The $34 billion USMV and the $8.8 billion SPLV were down 2.4% and 8.1%, respectively, year to date through Sept. 8—trailing the 4.5% return for the Vanguard S&P 500 ETF (VOO). In response, investors pulled $1.9 billion out of USMV and $1.8 billion from SPLV.

Meanwhile, a 20% loss for the Invesco S&P MidCap Low Volatility ETF (XMLV) likely also contributed to investors pulling $1.0 billion from the fund—shrinking its asset base to $2 billion.  

While sentiment matters, CFRA ETF ratings provide an independent forward-looking perspective. Our four- and five-star ratings on MTUM, SPLV and USMV and our one- and two-star ratings on DVY, SDY and SPHD incorporate risk, reward and cost metrics including holdings analysis and a past performance review.

Issuer Assets

iShares stands out among top-tier ETF providers. The five largest ETF providers based on overall assets (iShares, Vanguard, State Street Global Advisors, Invesco and Charles Schwab) all provide low cost broad exposure to U.S. equities. Yet these top-five firms also offer a wide range of dividend & fundamental and factor & thematic ETFs collectively comprising $219 billion of assets.

Year to date through Sept. 8, iShares grew the asset base of these products to $119 billion, aided by $10 billion of net inflows. In contrast, Invesco’s $30 billion in assets tied to these subcategories was hurt by $6.2 billion of net outflows.

Among the other top five firms, Vanguard pulled in $1 billion, while State Street Global Advisors incurred $1.9 billion of net redemptions; Schwab’s $225 million of net outflows minimally impacted its $20 billion asset base.

Dividend & Fundamental And Factor & Thematic ETF Flows in 2020 ($B)

Source: CFRA’s First Bridge Database, as of 9/8/2020

Conclusion

As many U.S. alternatively weighted ETFs have lagged the market-cap-weighted S&P 500 Index in 2020, investors have picked new favorites. In particular, demand for higher risk momentum and value ETFs was much stronger than previously popular lower volatility strategies. In contrast, dividend funds were a mixed bag: Some beaten-up products gathered assets, while others were shunned.

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