Advisors and investors poured an impressive $115 billion of new money into ETFs in July. That further proves the industry’s relentless pace, even during summer months. Heading into August, with over $680 billion of net inflows YTD, the ETF industry is on track to surpass the $1 trillion mark again. It will likely set a new calendar year record. (Data as of July 30.)
S&P 500 ETFs Further Swell in Size
Broad U.S. market exposure via ETFs continues to dominate. The Vanguard S&P 500 ETF (VOO ) is leading the way, by attracting $12 billion in July. With $72 billion in net inflows through the first seven months, VOO is on pace to exceed its 2024 record $116 billion.
VOO is not alone in its popularity while providing S&P 500 exposure. The SPDR S&P 500 ETF (SPLG ), the SPDR S&P 500 ETF (SPY ), and the iShares Core Core S&P 500 (IVV ) were among the top 10 ETF asset gatherers in July. Combined, the trio gathered $12 billion as investors continued to embrace these market-cap-weighted products.
However, for investors concerned that Nvidia and Microsoft each represent more than 7% of S&P 500 ETFs (with Apple not far behind), there are many alternative index-based ETFs to consider. The following is just a sample of what’s available.
Equal Weighting Made Simple
Rather than owning shares of 500 companies based on their market capitalization, investors can opt for an equal stake in each. The Invesco S&P 500 Equal Weight ETF (RSP ) offers precisely this. It holds stakes in the same companies as VOO and its peers, but with a different exposure profile.
Following its latest quarterly rebalance, Nvidia and Microsoft’s weighting in RSP is roughly equivalent to that of Advanced Micro Devices and TE Connectivity. As a result, RSP’s exposure to the information technology sector (14% of assets) is significantly lower than VOO’s (34%). Instead, it offers greater exposure to sectors like industrials (15% vs. VOO’s 8.6%). Indeed, VOO’s exposure to Nvidia alone nearly matches its entire industrials sector allocation.
My colleague Cinthia Murphy wrote last week about equal weight sector investing.
The Goldman Sachs Equal Weight US Large Cap Equity ETF (GSEW ) presents another option for broad market equal weighting. While GSEW is not tied to an S&P index to gain its large-cap exposure, its lower expense ratio of 0.09% offers a cost advantage over RSP’s 0.20%
Quality & Growth Indexing Provide Diversification Benefits Too
GSEW and RSP are a simple approach to obtaining diversification. But there are other more involved yet effective ways. One such style of ETFs involves quality and growth metrics.
The WisdomTree US Quality Dividend Growth ETF (DGRW ) offers a portfolio of approximately 300 large-cap dividend growth companies. Although Microsoft constitutes a 9% weighting, this is a result of the company meeting the ETF’s forward-looking quality and growth criteria. While technology stocks are widely held in the ETF (at 25% of assets), the inclusion of Chevron and Procter & Gamble in the top 10 provides valuable diversification benefits.
Meanwhile, the VictoryShares Free Cash Flow Growth ETF (GFLW ) comprises 100 stocks of highly profitable companies, selected based on strong free cash flow and forward-looking growth characteristics. Nvidia is a top 10 holding. at 2.4% of assets. But it’s surrounded by diverse companies like Applovin, Broadcom, DoorDash, and GE Vernova. While technology represented 38% of recent ETF assets, communications services, consumer discretionary, and industrials each accounted for more than 10%.
VettaFi LLC (“VettaFi”) is the index provider for GFLW, for which it receives an index licensing fee. However, GFLW is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of GFLW.
Originally published on Advisor Perspectives
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