On this week’s episode of ETF Prime, host Nate Geraci and VettaFi Investment Strategist Cinthia Murphy analyzed the various S&P 500 ETF offerings. Later, Geraci welcomed SS&C ALPS Advisors’ Chief ETF Strategist Paul Baiocchi to discuss ETF trends, from active and alternatively-weighted strategies to international and thematic ETFs.
Vanguard’s S&P 500 ETF Continues to Dominate Flows
The Vanguard S&P 500 ETF (VOO ) has already seen record-breaking inflows this year, topping $65 billion.
Despite market volatility over the past 18 months, VOO has consistently attracted substantial inflows month after month, demonstrating a remarkable and impressive trend during a particularly turbulent period, according to Murphy. While the market has experienced significant volatility compared to recent years, this consistent inflow highlights VOO’s strength.
“I think we’ve seen every superlative used to describe the massive demand we’re seeing for VOO,” Murphy said. “[The word] that I really like, that makes the story really exciting to me, is the word consistent.”
The enthusiasm for VOO is unique, as the fund is not the oldest, nor the cheapest, S&P 500 ETF available to investors. State Street’s SPDR Portfolio S&P 500 ETF (SPLG ) is the cheapest, at just two basis points, while the SPDR S&P 500 ETF Trust (SPY ) is the oldest, launched in 1993.
Murphy attributes VOO’s success to Vanguard’s brand power and recent marketing efforts, as well as Warren Buffett’s influence, as he has cited VOO as a compelling investment.
S&P 500 ETF Innovation
There are innovative approaches to S&P 500 ETF investing, such as equal weighting, historical weighting, and revenue weighting.
The Invesco S&P 500® Equal Weight ETF (RSP ) has a sizable asset base as investors look to escape S&P 500 concentration with an equal weight approach.
“It assigns the exact same weighting to every single stock. That immediately trims down that top heaviness, that immediately brings up the smaller-cap stocks in the S&P 500,” Murphy explained. “That’s a very traditional approach to diversifying that concentration risk.”
The Invesco S&P 500 Revenue ETF (RWL ) is another fund that uses an alternative weighting methodology. RWL assigns weights based on company revenue, Murphy said.
“The biggest holding in RWL is Walmart, so not your traditional big tech names that you see in VOO and SPY,” Murphy said.
The GammaRoad Market Navigation ETF (GMMA) is another interesting fund that’s still relatively new. It provides downside protection through a T-bills allocation when the market is very bearish based on three different indicators, Murphy explained.
Advisors Becoming Aware of Benefits of Active Management
SS&C ALPS Advisors entered the ETF arena in 2010 with Alerian MLP ETF (AMLP ), the first MLP-focused ETF. The firm has added to its ETF lineup over the past 15 years, with both passive and active funds spanning different asset classes.
Over the past 15 years, ETF users have become more sophisticated in their understanding and evaluation of ETFs, Baiocchi said. Initially, ETF adoption was driven by the belief that passive investing outperformed active management, particularly in large-cap equities, as highlighted by the SPIVA report.
However, advisors are increasingly recognizing that active management can add value in other categories like fixed income and REITs, according to Baiocchi. This has led to a more nuanced approach where advisors combine cheap passive core holdings with active strategies for potential outperformance.
Consequently, advisors are more open to actively managed ETFs than they were in the past. This is particularly true for funds with strong track records in categories where active managers have historically outperformed.
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