It may be surprising to hear that in a year in which ETFs are shattering all sorts of records with regard to the amount of money they are taking in, the world's largest exchange-traded fund isn't participating in the bonanza. That's right; the SPDR S&P 500 ETF Trust (SPY), the $242 billion behemoth, has actually had net outflows this year to the tune of $4.2 billion.
SPY isn't the only ETF giant bleeding assets. There are a number of other funds from which investors have pulled billions of dollars. In some cases, there's seemingly no rhyme or reason why these funds are losing interest. In others, it's possible to come up with a plausible explanation.
In the case of SPY, for example, we can assume investors are gravitating toward cheaper rivals that track the same index.
For example, the iShares Core S&P 500 ETF (IVV) took in $24 billion this year, making it the world's second-largest exchange-traded, fund with $125 billion in assets under management.
Investors likely appreciate IVV's 0.04% expense ratio, which is less than half of SPY's 0.09% expense ratio.
A Few Basis Points Matter
The same reasoning may be behind why the $37 billion iShares Russell 2000 ETF (IWM), which comes with an expense ratio of 0.20%, had outflows of $1.9 billion in the year-to-date period.
Competing funds like the ultra-cheap Vanguard Small Cap-Value ETF (VBR), the Schwab U.S. Small-Cap ETF (SCHA) and the iShares S&P Small Cap ETF (IJR)―with expense ratios of 0.05% to 0.07%―picked up a more than $6 billion in combined assets this year.
Meanwhile, another bargain-priced trio seemingly stole assets from the $17.9 billion SPDR S&P MidCap 400 Index Fund (MDY), which had outflows of $1.7 billion in the period and charges 0.25%.
The Vanguard Mid-Cap ETF (VO), the iShares Core S&P Mid-Cap ETF (IJH) and the Schwab U.S. Mid-Cap ETF (SCHM)―also with expense ratios between 0.05% and 0.07%―took in a combined $4.5 billion this year.
The same pattern can be seen in a factor fund like the $36.4 billion iShares Russell 1000 Growth ETF (IWF), with outflows of $1.5 billion this year. Cheaper competing products such as the Vanguard Growth Index Fund (VUG), the Schwab U.S. Large-Cap Growth ETF (SCHG) and the iShares S&P 500 Growth ETF (IVW) had inflows of a combined $3.9 billion.
These figures suggest that among the cheapest, most liquid ETFs, a basis point or two in fees could make the difference between billions of dollars in outflows or inflows.
Not Just Costs
Of course, costs aren't the only thing that compel investors to buy or sell an ETF. The unpopularity of the $8.5 billion VanEck Vectors Gold Miners ETF (GDX), with its $2.8 billion worth of outflows this year, may have less to do with cost than investors simply avoiding gold miners (for whatever reason).
Likewise, for the iShares MSCI Japan ETF (EWJ) and the iShares MSCI Mexico Capped ETF (EWW), a lack of interest in Japanese and Mexican stocks may be the bigger driver of the more than $800 million worth of outflows from each of the funds than any cost considerations.
Finally, for the Deutsche X-trackers MSCI EAFE Hedged Equity ETF (DBEF) and the WisdomTree Europe Hedged Equity Fund (HEDJ), expectations about currency movements and new, dynamic competitors may be fueling the unpopularity of these funds.
The two had combined outflows of more than $13.2 billion last year and continue that trend with $1.6 billion worth of outflows so far this year.
International equity ETFs have been popular year-to-date, so the outflows from DBEF and HEDJ are the exception rather than the norm. These currency-hedged products tend to outperform their vanilla counterparts when the dollar is climbing (and vice versa). With the greenback selling off this year, they've underperformed, likely turning investors away from them.
For a full list of this year's least popular ETFs, see the table below:
*USD millions. Data measures the year-to-date period through Sept. 11, 2017.
Contact Sumit Roy at firstname.lastname@example.org