Bloomberg News reports that a group of Wall Street investors are attracted to cheaper alternatives and stay away from liquid products by choice. The largest and most well-known ETF, which is easy to trade, the $387 billion SPDR S&P 500 Trust (sticker SPY), has continued to be victim to the same trend this year as the money managers are making rounds of fewer cost clones.
It has been noted that around $25 billion has drained out from SPY over 80 days in outflow in the current year. On the other hand, the smaller siblings tracking the same index were found to absorb around $3 billion with redemptions of just 32 days.
What is the Proximate cause?
The reason is that SPY has been charging a comparatively higher ten basis points in contrast to only 3 for the younger clone, known as SPDR Portfolio S&P 500 exchange-traded fund (SPLG), worth $15 billion.
The same dynamic has also affected big names ETFs investing in almost everything ranging from high-yield credit to Big Tech stocks. For example, the Invesco QQQ Trust Series 1 ETF (ticker QQQ), worth $181 billion, was found to post an outflow of 70 days, compared to only 20 for Invesco NASDAQ 100 ETF (QQQM), worth $5.5 billion.
Bloomberg News reports that escalating demand for products of lower cost is a trend that has been established long, an industry subjected to raised eyebrows due to the fee war. However, it still may be an option that is smarter for the ones planning to rebuild long-term exposures seeing the cost pressures this year everywhere.
What have Credit Traders been up to?
The credit traders have been increasingly swapping out of the iShares iBoxx High Yield Corporate Bond ETF (HYG), worth $14 billion, for the smaller iShares Broad USD High Yield Corporate Bond ETF (USHY), as shown by Bloomberg data. USHY is ready to surpass HYG inflows for a straight second year. SPY or QQQ, the more expensive ETFs, offer unrivaled liquidity virtually and have high daily volumes for hedge funds and similar ones. However, the retail traders and financial advisors that are cost conscious are looking to save a couple of basis points every year, as per experts from the industry.
Weapon of Liquidity
According to James Seyffart, associated with Bloomberg Intelligence, SPY is the planet’s most liquid security.
A simple fact that reigns supreme in the market is that higher fees have generated more money on Wall Street for the fund giants. SPY brings in approximately $368 million yearly for the State Street Global Advisors, compared to SPLG’s roughly $4.6 million. The same formula has also been applied to the SPDR Gold Shares fund (GLD), the largest ETF commodity worth $56 billion, and comes with a hefty fee of 40 basis points and attracts more than $220 million annually.
