It was a healthy week for U.S. equity ETFs in general, with the asset class pulling in $7.3 billion in net inflows, as reported by FactSet, cited by Etf.com. However, SPDR S&P 500 ETF Trust (NYSE:SPY), the largest and most liquid S&P 500 benchmark, was the outlier for the wrong reason, with $2.1 billion in net outflows for the week ended Sept. 5.
SPY stock is challenging resistance. See what is driving the movement here.
At the same time, lower-cost competitors jumped. Vanguard S&P 500 ETF (NYSE:VOO) collected $5 billion, and iShares Core S&P 500 ETF (NYSE:IVV) collected almost $800 million. Together, the two funds now manage nearly $1.4 trillion.
The decoupling reflects a subtle but significant change in the S&P 500 ETF universe: cash continues to flow into the index, but not necessarily into the market’s oldest ETF.
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Rotation Or Rebalancing?
Experts quote the outflows as not necessarily a bearish sentiment for the S&P 500. Rather, they could be a result of institutional investors rebalancing portfolios or arbitraging in between analogous funds. SPY’s liquidity makes it popular for hedging and option strategies for the short term, involving fast in-and-out flows.
Meanwhile, long-term investors tend to favor VOO or IVV because they have lower expense ratios — only 0.03% versus SPY’s 0.09%. That works out to $60,000 in savings per year on an allocation of $100 million, and that can add up for pension funds, endowments and wealth managers.
S&P 500 Sentiment Intact
The overall flows data also verify faith in U.S. equities is robust. Large-cap value ETFs such as Vanguard Value Index Fund (NYSE:VTV) gained $810 million, while growth-sensitive areas such as semiconductors experienced significant inflows, with Direxion Daily Semiconductor Bull 3x Shares (NYSE:SOXL) gaining $668 million and VanEck Semiconductor ETF (NASDAQ:SMH) accumulating $592 million. International equity ETFs also accumulated $4.3 billion, indicating that investors continue to diversify outside of their home markets.
In contrast, Nasdaq-based QQQ lost $4.9 billion, the week’s largest redemptions, indicating some profit-taking or rotation out of concentrated mega-cap tech. But despite QQQ and SPY redemptions, U.S. equity ETFs as a whole finished the week firmly positively, with $2.4 billion in total inflows, indicating that the thirst for equities hasn’t diminished.
More Targeted ETF Investing
The actions highlight the way ETF investors are growing more tactical, not only selecting funds based on what they track but also the way they trade. SPY continues to be the institution’s first choice for liquidity and derivatives markets, while VOO and IVV draw sticky, low-cost long-term flows. As trading and investment demands bifurcate, the S&P 500 ETF market is bifurcating along those lines instead of diminishing.
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