After enjoying a huge rally for most of the year, Wall Street got caught in a web of woes last month and saw a vicious circle of trading. The spread of the Delta variant of COVID-19, inflation fears, prospects of tightening policies, budget wrangling in Washington and slowing growth in China continued to unnerved investors.
In particular, the spike in commodity prices has raised inflation, leading to a spike in yields. This has sparked fears of overvaluation especially in a high-growth sector like technology, which has seen a huge surge during the pandemic. The Chinese regulatory crackdown as well as concerns over the financial contagion due to the potential failure of China’s Evergrande property group added to the chaos.
However, a wider rollout of COVID-19 vaccines, a huge stimulus, upbeat earnings, a recovering job market and reopening trade have pushed the market higher throughout the year. The combination of all the factors led to pent-up demand, resulting in higher demand for all types of products and services in the economy.
Overall, ETFs gathered $647.8 billion in the first nine months of the year per eftf.com. U.S. equity ETFs led the way, accumulating $306.4 billion followed by inflows of $171.2 billion for international equity ETFs and $129.5 billion for U.S. fixed income ETFs. The solid trend is likely to continue given the growing optimism in the U.S. economy and worries over a tax hike (read: Tax Hike in the Cards? ETFs in Focus).
ETFs are more tax efficient than mutual funds. Mutual fund managers need to sell securities to raise cash for redemptions in case an investor exits the fund, which triggers a taxable event for all investors. On the other hand, ETFs follow an “in-kind” creation and redemption process where ETF issuers exchange shares for baskets of underlying securities, which do not trigger a taxable event. Per Bloomberg, ETFs’ tax efficiency characteristic could be a boon for those looking at a higher tax bill. This would accelerate the ongoing shift that has shifted hundreds of billions of dollars from mutual funds to ETFs.
Given this, we highlight five ETFs that are the top creators this year and can continue to be investors’ darlings for the rest of the year should the current market trends prevail:
Vanguard S&P 500 ETF (VOO - Free Report)
VOO has topped asset flow creation this year, gathering $40.5 billion in capital. It tracks the S&P 500 Index and holds 507 stocks in its basket with information technology, healthcare, consumer discretionary, communication services and financials being the top five, with a double-digit allocation each. The ETF charges investors 3 bps in annual fees and trades in an average daily volume of 3.9 million shares. It has AUM of $249.8 billion and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
Vanguard Total Stock Market ETF (VTI - Free Report)
This fund has accumulated $31.7 billion in capital, taking its total AUM to $265.7 billion. It provides exposure to the broad stock market by tracking the CRSP US Total Market Index. The ETF holds a large basket of well-diversified 3980 stocks with key holdings in technology, consumer discretionary, industrials, healthcare and financials. It charges 3 bps in fees per year from investors and trades in an average daily volume 3.3 million shares. VTI has a Zacks ETF Rank #2 with a Medium risk outlook (read: Tax Hike Worries Drive Last Week's Inflows: 5 Hot ETFs).
Vanguard Total Bond Market ETF (BND - Free Report)
This ETF has accumulated around $15.9 billion in its asset base so far this year. It targets the broad U.S. investment grade bond market by tracking the Bloomberg Barclays U.S. Aggregate Float Adjusted Index. The product holds 10106 securities in its basket with an average maturity and effective duration of 8.7 years and 6.8 years, respectively. BND is the second-largest bond ETF with AUM of $82 billion and an average daily volume of 4.6 million shares. It charges 3 bps in annual fees.
Vanguard Short-Term Bond ETF (BSV - Free Report)
This ETF accumulated about $13 billion, taking its total AUM to $42.2 billion. It offers diversified exposure to the short-term, investment-grade U.S. bond market by tracking the Bloomberg U.S. 1–5 Year Government/Credit Float Adjusted Index. It is home to 2,654 stocks with effective maturity of 2.9 years and an average duration of 2.8 years. The fund charges 5 bps in annual fees and trades in an average daily volume of 2.5 million shares.
Vanguard Value ETF (VTV - Free Report)
This fund has accumulated $12.5 billion in capital, taking its total AUM to $84 billion. It targets the value segment of the broad U.S. stock market and follows the CRSP US Large Cap Value Index. The fund holds 352 stocks in its basket with key holdings in financials, healthcare, industrials, and consumer staples. The ETF has AUM of $84 billion and charges 4 bps in annual fees. It trades in volume of 2.1 million shares per day on average and has a Zacks ETF Rank #2 with a Medium risk outlook (read: A Bunch of Dirt-Cheap Value ETFs to Buy Now).
