The popularity of ETF investing has been rising since its inception about 26 years ago. Assets held by U.S. listed ETFs have now surged to more than $4.4 trillion (read: 9 Successful New ETFs of 2019).
Total ETF assets have been increasing at a “fairly consistent” annual rate of 25% from $770 billion 10 years ago, Bank of America said. The market could reach $5.3 trillion by the end of 2020 (if the current growth rate is maintained), and a blockbuster $50 trillion by 2030, the bank forecast.
However, asset growth momentum hasn’t been same for all ETFs. Out of 1,662 ETFs tracked by investment-research firm CFRA LLC over a five-year period through August, 24% was closed and an incremental 30% witnessed a decline in assets, Wall Street Journal noted.
Industry Biggies Win, Small-Players Lose
Many funds are small in size despite having a lucrative methodology. They remain unprofitable after remaining in the marketplace for a year or two and eventually shut down. Investors who bet on those small-asset funds encounter an “unexpected tax hit when a fund closes and returns their money,” per Wall Street Journal.
The problem probably is lack of innovative and fresh ideas given the maturity of the industry. “Prior to 2008, new funds had an easier time getting off the ground,” pointed out Wall Street Journal. But it is now too tough to enjoy a first-mover advantage as almost every theme, every asset class, every factor, every country has an ETF for itself (read: Should You Invest in Factor & Smart Beta ETFs?).
Small issuers are facing this problem particularly because there are “too big to fail” issuers like BlackRock Inc. BLK, Vanguard Group and State Street Corp. STT, that dominate 81% of all ETF assets. Most of the fastest-growing ETFs were broad, low-cost products managed by these industry behemoths, as quoted on Wall Street Journal.
Investors’ blind faith in such big players led only 20 ETFs of the 1,662 tracked by CFRA to make up for 44% of the industry’s asset growth over the five-year stretch.
Upbeat Stock Market Kept Interest in Passive ETFs Charged-Up
Investors should note that the upbeat stock market in the past five years has kept the passive funds in a sweet spot. SPDR S&P 500 ETF Trust SPY was up 59.4% in the past five years. Bank of America, which expects the S&P 500 to rise 5% in 2020, believes that a relatively strong stock market will also drive passive funds in the days ahead.
ETFs That Amassed Most Assets in Past 3 Years
Against this backdrop, below we highlight 10 ETFs that garnered maximum assets in the past three years (the data are as per etf.com). Needless to say, the list comprises only BlackRock and Vanguard funds.
iShares Core S&P 500 ETF (IVV) – $56.67 billion; Expense Ratio (ER): 0.04%
iShares Core MSCI EAFE ETF (IEFA) – $52.67 billion; ER: 0.07%
Vanguard S&P 500 ETF (VOO) – $40.74 billion; ER: 0.03%
iShares Core MSCI Emerging Markets ETF (IEMG) – $37.90 billion; 0.14%
Vanguard Total Stock Market ETF (VTI) – $34.74 billion; ER: 0.03%
Vanguard FTSE Developed Markets ETF (VEA) – $28.28 billion; 0.05%
iShares Core U.S. Aggregate Bond ETF (AGG) – $25.57 billion; 0.05%
Vanguard Value ETF (VTV) – $18.26 billion; 0.04%
Vanguard Total International Bond ETF (BNDX) – $18.12 billion; 0.09%
iShares Edge MSCI Minimum Volatility U.S.A. ETF (USMV) – $17.43 billion, ER: 0.15%
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.