Equity ETFs Are Shining, But What’s Next?

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).