Money Pours Into Multifactor US ETFs

Flows into multifactor U.S. equity ETFs have gone gangbusters in 2019. Year-to-date, four of the top five largest multifactor U.S. stock ETFs have seen inflows of roughly $100 million or more; altogether, these five funds have brought in $1.8 billion in new assets:

*This one-day inflow into SPHD represents the first half of a "heartbeat flow" trade that was canceled two days later. To learn more about these trades, read "The Heartbeat Of ETF Tax Efficiency."

Source: ETF.com; data range: 1/1/2019 -3/18/2019
 

In January, the Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (GSLC) saw a week where $194 million entered the fund; the largest one-day inflow was $98 million.

Then in February, the Oppenheimer Russell 1000 Dynamic Multifactor ETF (OMFL) saw an influx of $559 million, far and away the fund's largest inflow ever.

On Monday, March 11, the Franklin LibertyQ U.S. Equity ETF (FLQL) saw a massive one-day influx of $451 million that nearly doubled the size of the fund.

Meanwhile, the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) hasn't see significant one-day net inflows, but rather a consistent influx of cash all year, a snowball effect that has totaled $250 million year-to-date.

Flows Coming From Inside The House?

We can't yet know for sure precisely who has invested all this money into multifactor U.S. stock funds. We won't know that until this quarter's 13F statements are published, revealing what ETFs are owned by which asset managers worth $100 million or more (read: "Who's Buying What ETF?").

Even then, 13F filings only report ownership data as of a certain date in time, not what money managers currently own, right this second. They're also self-reported, and can contain misleading data (more on that in a second).

Still, at least in the case of FLQL, we can make an educated guess, based on the size of the inflows and prior filings.

As of Dec. 31, ownership in FLQL was dominated by Franklin itself, which reported itself as owning $421 million of the fund (source). At the time, however, FLQL had only $384 million in assets under management, meaning there was likely some double-counting baked into this figure (e.g., Franklin held the fund on behalf of its own mutual funds or annuity products). Nothing nefarious is going on here, by the way; this sort of double-counting is commonplace whenever you're dealing with funds that hold ETFs.   

The point is that Franklin owned most of FLQL as of year-end 2018. So when massive, double-the-fund-assets-in-one-go-type flows start showing up in 2019, it stands to reason Franklin is the one behind those flows as well.

Eating Their Own Lunch

If our hypothesis proves true, it would be just one more example of the bring-your-own-assets approach toward growing ETFs that we've seen recently, as institutions increasingly eat their own ETF lunch.

From J.P. Morgan's billion-dollar flows into its own BetaBuilder funds, to John Hancock's flows into its own multifactor emerging fund last November, big money managers are pouring money into their own branded products.

Far from a new trend, however, this represents a return to the industry's earliest days. ETFs began life as a vehicle designed for institutions, only to later find success with retail investors. In recent months, we've seen the pendulum of inflows swing back hard toward institutional use.

Only time—and our fund flows tool—will tell if retail investors once again follow institutions, whether into multifactor ETFs or elsewhere.

Contact Lara Crigger at [email protected]