After a slow start to asset gathering, U.S.-listed equity ETFs were in vogue during the summer. At the end of August, the asset category had $165 billion of net inflows, more than $125 billion for fixed income. US equity ETFs gathered the lion share for the category. However, international equities’ 20% share of the industry’s net inflows were higher than that of its asset base.
Most equity ETFs incurred losses in 2022, but the iShares Core S&P 500 ETF (IVV) rose in value 19% year-to-date as of September 1. Meanwhile the Vanguard FTSE Developed Markets ETF (VEA) climbed 11%. While these gains are notable, there are comparable ETFs that added more value.
Quality ETFs Worthy of Paying Up For
AI and technology in general have been a big driver of returns in 2023. However, many broad-market high-quality ETFs outperformed. For example, the VanEck Morningstar Wide Moat ETF (MOAT) was appreciated 24%. The iShares MSCI USA Quality Factor ETF (QUAL) rose 23%. The American Century U.S. Quality Growth ETF (QGRO) was up 22%.
These ETFs take unique index-based approaches to providing exposure to companies with strong fundamentals. While there are mega-caps like Alphabet inside, advisors will also find Domino’s Pizza, Emerson Electric, and TransUnion among MOAT’s top-10 holdings.
In 2023, we have seen quality ETFs launch like the Astoria US Quality Kings ETF (ROE) and the VictoryShares Free Cash Flow ETF (VFLO).
Some Active Strategies Are Outperforming
We have written about how many well-known providers of active mutual funds have joined the ETF market in recent years. For some, 2023 has been a rewarding year. The T. Rowe Price Blue Chip Growth ETF (TCHP) and the Harbor Long-Term Growers ETF (WINN) have climbed 39%. The Capital Group Growth ETF (CGGR) was up 29%.
Meanwhile, the Avantis U.S. Small Cap Value ETF (AVUV) was up 12%, which compares favorably to the 10% total return iShares Russell 2000 ETF (IWM).
There’s also a growing number of new actively managed ETFs to consider including the BlackRock Large Cap Value ETF (BLCV) and the JPMorgan Active Small Cap Value ETF (JPSV). Advisors are increasingly embracing actively managed equity ETFs as an alternative to mutual funds.
International Equity ETFs Gaining Ground Too
Though a U.S. home bias continues to be fruitful, investors miss out on some multinational companies and strong gains particularly in Japan. While VEA’s largest exposure was to Japan (21% of assets), a more concentrated approach to developed markets has helped some advisors. The Franklin FTSE Japan ETF (FLJP) rose 15% and with its miniscule 0.09% fee is compelling.
However, a relatively weak yen has impacted investing in Japan in 2023 and a currency hedged approach has added value. The WisdomTree Japan Hedged Equity Fund (DXJ) rose 38%. The ETF has top-10 stakes in Mitsubishi Corporation and Toyota Motor.
VettaFi Equity Symposium – September 21
During the summer, VettaFi brought hundreds of advisors together virtually to learn from industry experts. In July, we hosted a Fixed Income Symposium and in August we covered AI (replays are available if you missed them).
We’re excited to announce the VettaFi Equity Symposium on September 21. While the agenda is still being finalized, we expect great insights to be shared to Tom Lydon and I from experts from providers of active and index-based equity ETFs. In addition to continuing education credits, you will walk away with insights on how to position client portfolios for the rest of 2023 and beyond. Sign up today.
For more news, information, and analysis, visit VettaFi | ETF Trends.
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