Stock prices have risen sharply in 2019, but the 20 biggest ETFs, which collectively have $1.33 trillion in assets under management (AUM) and a market share of roughly 60% in their category, have seen outflows or slow growth this year. Meanwhile, small, niche product ETFs are enjoying net inflows, according to analysis by Jefferies Equity Research, “The growth in assets has taken another twist and looks to be moving into smaller ETFs that cover very specific investment segments, like USMV for minimum volatility,” the Jefferies analysts said, as quoted by MarketWatch.

Significance for Investors

The biggest ETF of all, the SPDR S&P 500 ETF Trust (SPY), has seen net withdrawals of $8.7 billion for the year to date through Sept. 18, per ETF.com. The second-largest, the iShares Core S&P 500 ETF (IVV), has seen net inflows of only $7.8 billion, or just 4.1% of its current AUM. The popular tech-oriented Invesco QQQ Trust ETF (QQQ), the fifth-biggest ETF, has net inflows of $302 million, a scant 0.4% of its current AUM. As a point of reference, the S&P 500 Index (SPX) is up by nearly 20% so far in 2019.

By contrast, the iShares Edge MSCI Min Vol USA ETF (USMV) has pulled in a net $10.2 billion so far this year, representing a stunning 30% of its AUM. This fund offers a portfolio of U.S. stocks that seeks to minimize volatility at low total cost. It has posted a YTD gain of 22.72%, close to the 22.85% advance for its benchmark, the MSCI USA Minimum Volatility Index.

The USMV ETF has a total of 212 holdings, with the top 10 accounting for 14.81% of its portfolio value. The top 10 are, per ETF.com: Newmont Goldcorp Corp. (NEM), Coca-Cola Co. (KO), Visa Inc. (V), McDonald's Corp. (MCD), Verizon Communications Inc. (VZ), PepsiCo Inc. (PEP), Waste Management Inc. (WM), NextEra Energy Inc. RS(NEE), Republic Services Inc. (RSG), and Yum! Brands Inc. (YUM).

Meanwhile, ETFs that invest in small cap stocks, particularly those represented in the Russell 2000 Index, also are enjoying brisk inflows, Barron's reports. Among Russell 2000 stocks, many now have 20% or more of their market caps held by ETFs, and the leaders in this regard are Meredith Corp. (MDP), Black Hills Corp. (BKH), and United Bankshares Inc. (UBSI). Small cap stocks with high ETF exposure can experience liquidity shocks as a result of ETF flows, which will increase the volatility of these stocks, per research cited by Barron's.

Looking Ahead

As the bull market ages, and investors become more concerned about its sustainability, more focused and defensively-oriented investment strategies are bound to gain in popularity, and this will affect ETF fund flows. Already, the minimum volatility strategy is taking hold, as evidenced by strong inflows of funds.