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ETF Trends Seen in the 10-Year Old Bull Market

Sanghamitra Saha

Since the launch of the first ETF almost 25 years back, the exchange-traded fund industry has attained great heights. There are currently about 2,252 exchange-traded products listed in the United States, with almost $3.73 trillion in assets under management. Not only this, the area has gained such popularity that it has played a major role in driving 2019 bull market so far.

The number of ETFs has increased by about 0.5% so far this year, while assets have swelled by 10.2%. This comes against about 4.3% asset gains seen during this period last year (read: ETFs Drive 2019 Bull Market: Fund & Stock Plays).

So, it makes sense that we have a look at the hot ETF trends at the opportune momentum of the 10-year old bull market. Nine years ago, on Mar 6, the S&P 500 touched a bear market nadir of 666.79, only to stage an astral rally in the next decade. Notably, SPDR S&P 500 ETF SPY advanced 386.8% past decade.

Growth ETFs Outdid Value Ones

Over the past decade, growth ETFs plainly outperformed value ones, both at the large and small-cap spectrum. Large-cap SPDR Portfolio S&P 500 Growth ETF SPYG (up 460.2%) and small-cap iShares Russell 2000 Growth ETF IWO (up 443%) clearly breezed past their value counterparts, SPDR Portfolio S&P 500 Value ETF SPYV (up 326.7%) and iShares Russell 2000 Value ETF IWN (up 353.2%).

Bulk Product Launches, Smart Beta Gaining Prominence

There has been a steady shift in ETF launches in the last few years. The tactics of plain-vanilla bond ETFs do not seem to be working anymore and issuers are focusing increasingly on active and smart-beta bond ETFs.

And why not? Since the financial crisis a decade ago, tendencies of central banks of the developed world appear to be changing. Though some of these are still practicing heightened accommodative polices, the United States is doing the opposite. But all these failed to put the global economy on a synchronized uptrend as slowdown fears are rife this year. Due to this fast-changing economic and political background, issuers had to rely on active and factor-based techniques (read: Behind Rise of Smart Beta Bond ETFs).

According to ETFGI, total assets invested in the global Smart Beta ETF and ETP industry rose 10.1% in January from the end of December to $680 billion. It marked 36th successive month of net inflows into Smart Beta ETFs/ETPs.

ETF Fee War

Cost is an important factor that drives their investment decision. In the long run, cheaper funds can drastically outperform the expensive ones, at least when other factors remain constant. So, it’s natural for issuers to cut fees at some point down the line to stay competitive in this fast-growing business.

For a long period of time, the lowest cost corner of the market was dominated by Charles Schwab and Vanguard. But several other issuers are looking for a bigger pie in the ETF market. Most of them like BlackRock, Fidelity or State Street have now been cutting costs fast. Last month, Social Finance Inc., an online lender said it is rolling out new passive ETFs charging zero management fee at least for the first year of operation (read: Zero-Fee ETFs to Hit the Market Finally?).

Currently, the lowest expense ratio charged by issuers like Charles Schwab Corp. BlackRock Inc. and State Street Corp. is 0.03%. These funds are Schwab U.S. Broad Market ETF SCHB, iShares Core S&P Total U.S. Stock Market ETF ITOT and SPDR Portfolio Total Stock Market ETF SPTM.

Buybacks: Backbone of Bull Market

Per an article published on Forbes, the amount of cash that the S&P 500 index companies have returned to their shareholders has increased every year since 2009. In the Q4 of 2018, S&P companies paid out $119.8 billion, a quarterly record. Tax reform helped companies to attain this height. 

U.S. companies repurchased a record $1 trillion in stocks in 2018, and that momentum is showing no signs of easing this year. Buybacks have shown an improving trend since 2009 and finally beat capital expenditure last year for the first time since 2008, per the source.

Total dividends for 2018 were $456.3 billion, up 9 percent from the previous year — another new record. Buybacks have in fact played a great role in driving 2019 bull market momentum.Invesco Buyback Achievers Portfolio PKW added about 428.2% during this bull market (read: Buybacks on a Tear Despite Political Attack: ETFs in Focus).

Niche Strategy ETFs Are Popular, ESGs Are In

Although broad market funds did quite well during decade-old bull market (some consider it most-hated though), so-called niche strategy ETFs or thematic ETFs stole the show. First Trust US Equity Opportunities ETF FPX (up 589.8%) and PKW beat S&P 500 (up about 386.8%).

Coming to one of the most emerging trends in the ETF issuances, socially responsible or environmental, social and governance (ESG) ETFs are just red hot. Assets invested in ESG ETPs grew 30% in 2018 to $22 billion across 208 funds, despite a somber mood around equity investing. iShares, Vanguard, State Street and DWS Group — all have presence in this segment. iShares MSCI KLD 400 Social ETF (DSI), the highest-grossing ESG ETF, has also topped the S&P 500 in the past 10 years.

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SPDR Portfolio S&P 500 Value ETF (SPYV): ETF Research Reports
 
iShares Core S&P Total U.S. Stock Market ETF (ITOT): ETF Research Reports
 
iShares Russell 2000 Value ETF (IWN): ETF Research Reports
 
iShares Russell 2000 Growth ETF (IWO): ETF Research Reports
 
Schwab U.S. Broad Market ETF (SCHB): ETF Research Reports
 
SPDR Portfolio S&P 500 Growth ETF (SPYG): ETF Research Reports
 
First Trust US Equity Opportunities ETF (FPX): ETF Research Reports
 
Invesco BuyBack Achievers ETF (PKW): ETF Research Reports
 
SPDR S&P 500 ETF (SPY): ETF Research Reports
 
Drive Shack Inc. (DS) : Free Stock Analysis Report
 
SPDR Portfolio Total Stock Market ETF (SPTM): ETF Research Reports
 
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